Corporate Governance Practices

Instilling a high level of trust and confidence in all areas of our business is of the utmost importance to Indigo. We believe that strong corporate governance practices are vital to both achieving and maintaining this level of trust and confidence with our employees, customers, and investors. Our corporate governance practices have been reviewed to ensure that they meet the Ontario Securities Commission requirements and also reflect our dedication to conducting business with the integrity our employees, customers, and investors demand.

The Board believes that good corporate governance practices are essential to the effective management of the Corporation. Indigo is committed to high standards of governance, with a strong culture of integrity and ethical behaviour.

Board Responsibilities

The Board of Directors (the “Board”) is responsible for the supervision of the management of the business and affairs of the Corporation, with oversight being performed either directly or indirectly through Board committees. To assist in discharging its duties, the Board has established two committees of the Board, namely the Audit Committee, and the Human Resources, Compensation and Governance Committee (the “HRCG Committee”).

Strategy

The Board is responsible for the approval of the Corporation’s overall direction. Pursuant to its mandate, the Board assesses and approves all major strategic decisions, including any shift in strategic direction, as well as acquisitions and divestitures of a material nature. The Board participates fully in assessing and approving strategic plans and prospective decisions proposed by management. Quarterly financial reports provided by management allow the Board to monitor and assess corporate performance against Board approved strategic plans.

Risk Management

To ensure that the principal business risks borne by Indigo are appropriate, the Board receives periodic reports from management outlining its assessment and management of such risks. This responsibility is shared with the Audit Committee to which oversight of the Corporation’s enterprise risk management has been delegated by the Board. The Audit Committee reviews detailed financial information contained in management reports and hears and acts upon the recommendations of Indigo’s auditors.

Oversight of Management

Day-to-day management of the affairs of the Corporation has been delegated to the Chief Executive Officer, working with the Board-appointed executive team. The Board reviews ongoing reports regarding the performance of the Corporation. In respect of senior management succession planning, the HRCG Committee, is involved in considering internal and external candidates to fill senior management positions at Indigo.

Financial Reporting and Internal Controls

With the assistance of the Audit Committee, the Board oversees the Corporation’s financial reporting and disclosure obligations, as well as approving all of the Corporation’s disclosure documents. The Audit Committee also supports the Board in assessing the Corporation’s system of internal financial controls, satisfying itself that the controls are effective and efficient.

Communications Policy

The Board has adopted a communications/disclosure policy and directly approves significant corporate communications with shareholders.

Corporate Governance

The Board, with the assistance of the HRCG Committee, develops and monitors the Corporation’s approach to corporate governance, ensuring appropriate, effective processes are in place.

Integrity, Ethics and Social Responsibility

A strong culture of integrity and ethics is promoted throughout the organization, including adherence to its code of conduct.

Composition

The Board currently consists of eleven members, ten of whom are standing for election at the annual shareholders’ meeting scheduled for July 17, 2017. Indigo endeavours to have a sufficient number of directors with the appropriate balance of skills, experience, expertise, industry knowledge and diversity to effectively carry out the Board’s mandate. The HRCG Committee regularly assesses whether the Board possesses the appropriate mix of qualifications to function effectively. Directors make recommendations of new individuals to serve on the Board for consideration by the HRCG Committee as they become aware of suitable, available candidates. The HRCG Committee considers those candidates who are highly qualified based on their professional experience, functional expertise, personal skills and qualities.

As a practice, the Board approves significant corporate communications with shareholders.

Director Term Limits

The HRCG Committee regularly assesses the composition of the Board, including director tenure. This evaluation enables the HRCG Committee to solicit feedback regarding the effectiveness of the Board, whether Board members have the appropriate skills and expertise required, and whether mandatory term limits for directors should be adopted. The Board has not adopted term limits for its directors as it feels that setting a term limit may force certain directors possessing the necessary experience, expertise and industry knowledge to not stand for re-election, depriving the Board of such acquired wisdom and skills.

Representation of Women on the Board

Indigo has not adopted a written policy relating to the identification and nomination of women on the Board, as the Corporation believes the Board has and continues to demonstrate its commitment to identify and nominate strong female candidates for leadership and Board membership. The HRCG reviews and assesses Board composition and oversees the review of Board effectiveness. Board candidates are considered based on merit, in the context of skills, qualifications, experience and knowledge required for an effective board, with due regard to the benefits of diversity. The Board recognizes the benefits of diversity among its members, including diversity of experience, viewpoints, gender, etc. A specific target or quota of women on the Board has not been adopted at this time, given the level of female representation on the Board. Currently, three of eleven Indigo directors (or 27%) are women. As one male director is not standing for re-election at the 2017 annual shareholders’ meeting, following the meeting, the percentage of female directors on the Board will be at 33%. Notably, the Chair of the Board is female and one new female director was appointed to the Board during fiscal 2017. The Board intends to continue to make diversity a significant consideration in director identification and selection.

Representation of Women in Executive Officer Positions

The Corporation has not adopted a specific target or quota of women in executive officer positions, given the level of female representation within executive officer roles . Currently, three of nine executive officers (or 33%) are women. Indigo believes that hiring and retaining executive officers should be primarily based on individual merits, with consideration given to gender diversity. The Corporation is committed to promoting women to executive positions and ensuring that women candidates are fairly considered for such positions. Management feels that gender diversity has always been a significant part of the corporate culture at Indigo, which is one of the few Canadian public companies with a female Chair of the Board and Chief Executive Officer.

Board Directorships

A number of Indigo’s directors sit on the boards of other reporting issuers. For each such director, the following table lists the name of the reporting issuer on whose board of directors the director currently serves.

Director

Reporting Issuer

Mitchell Goldhar

SmartREIT (formally Calloway Real Estate Investment Trust) (since 2005)

Onex Corporation (since 2017)

Anne Marie O’Donovan

MDC Partners Inc. (since March 2016)

Heather Reisman

Onex Corporation (since 2003)

Gerald Schwartz

The Bank of Nova Scotia (Honorary Director) (since 2007)

Onex Corporation (since 1987)

Joel Silver

Davids TEA Inc. (since 2017)

Board Independence

As stipulated in its Mandate, the Board is comprised of a majority of “independent directors” as defined by National Instrument 52-110 - Audit Committees (“NI 52-110”). Of its members, Ms. O’Donovan, and Messrs. Clegg, Deitcher, Goldhar, Grosfield, Haft, and Kirby are considered by the Board to be “independent directors”. Four members of the Board are non-independent within the meaning of the NI 52-110, namely Ms. Reisman being a member of management, Mr. Schwartz being Ms. Reisman’s spouse, Ms. Johnson being Ms. Reisman’s daughter, and Mr. Silver who is Managing Partner of Trilogy Growth, a limited partnership indirectly controlled by Mr. Schwartz. As previously noted, Mr. Silver has decided not the stand for re-election at the annual shareholders’ meeting scheduled for July 17, 2017.

The Board believes that these seven independent directors are free from any interests in or relationships with the significant shareholder or any of its affiliates. The Board also believes that these independent directors as members of the Board, including an independent lead director, fairly reflect the investment in Indigo by minority shareholders.

Indigo is controlled by Mr. Schwartz, who indirectly, holds approximately 57.7% of the Corporation’s outstanding Shares and is a “significant security holder” within the meaning of National Instrument 58-101 – Disclosure of Corporate Governance Practices. Ms. Reisman is Chair of the Board and Chief Executive Officer of Indigo. In the view of the Board, the fact that Ms. Reisman occupies both offices does not impair the ability of the Board to act independently of management. The Board has reached this conclusion for the following reasons:

  • seven of the Corporation’s eleven directors are independent;
  • the Audit Committee is comprised solely of independent directors and meets on a regular basis;
  • all of the Board’s Committees are comprised solely of independent directors; and
  • the Board has appointed Mr. Michael Kirby, an independent director, as Indigo’s lead director (“Lead Director”), responsible for ensuring that the Board functions independently of management.

The Board has also adopted the following governance practices:

  • at each regular meeting, the Board shall routinely meet with Ms. Reisman and the Corporation’s Executive Vice President and Chief Financial Officer without the presence of other members of management to consider any matter not easily or appropriately discussed in the larger forum. The topics discussed may include the effectiveness of the Board meeting, the performance of any individual member of management or the Board, the performance of the Board itself, or any matter of concern to any director;
  • the Board, at each meeting other than unscheduled meetings called for the sole purpose of approving specific transactions, shall have an opportunity to call for a session in the absence of Ms. Reisman, or any other member of management; and
  • any member of the Board may provide the Lead Director with agenda items for discussion at any meeting and the Lead Director has the right to place such items on the Board’s agenda in his discretion.

Meetings of exclusively independent directors may be held if such a meeting is deemed necessary to allow for open and candid discussion among the independent directors. It is the general practice for the full Board to meet without management, but with the Chief Executive Officer present, following all regularly scheduled in-person Board meetings. Four such Board meetings were held in fiscal 2017.

All Committees of the Board are comprised solely of independent directors. In fiscal 2017, there were a total of ten meetings of independent directors meeting in their capacity as Audit, Human Resources and Compensation, and Corporate Governance Committee members. The Committee members meet in camera, without the presence of management, when necessary, at the conclusion of the Committee meeting. The Board feels that such regularly scheduled Committee meetings allow for candid discussion among independent directors.

A formal position description for the office of the Chair and Chief Executive Officer has been developed and approved by the Board. The Board has also approved formal corporate objectives which the Chief Executive Officer is responsible for achieving. The Board, the HRCG and the Chief Executive Officer engage in regular ongoing dialogue regarding the performance of the senior management team in achieving Indigo’s strategic objectives as recommended by management and approved by the Board.

Board Committees

The Board has two standing Committees, namely the Audit Committee and the Human Resources, Compensation and Governance Committee. Each committee has a formal mandate outlining its responsibilities and its obligations to report its recommendations and decisions to the Board, as well as a written position description of each committee chair.

Audit Committee

The Audit Committee is comprised of three Outside Directors, all of whom are independent and financially literate within the meaning set out in Canadian securities law. The Audit Committee is responsible for the oversight of Indigo’s internal accounting and control systems. It reviews the financial statements, annual and special meeting materials and other public disclosure documents of Indigo and makes recommendations to the Board before such statements, materials and documents are approved by the Board. The Audit Committee oversees the work of the external auditor, annually approving the audit plan and monitoring their independence, as well as recommending the auditor for annual appointment. The Audit Committee communicates directly with Indigo’s auditors in order to discuss audit and related matters whenever appropriate. In addition to the work of the external auditor, the Audit Committee also reviews the internal audit plan and quarterly reports prepared by the internal auditor. The Audit Committee is responsible for oversight of the enterprise risk management of the Corporation, including IT risk.

Human Resources, Compensation and Governance Committee

The HRCG Committee is comprised of four Outside Directors, all of whom are independent.

(i) Human Resources and Compensation Responsibilities

The HRCG Committee has been entrusted by the Board with the responsibility of reviewing and making recommendations to the Board regarding compensation philosophy and its elements and to assist the Board in executing its responsibilities in regard to executive management compensation. Specifically, the HRCG Committee’s charter provides that the Committee shall, among other things: recommend appointment of officers, Chief Executive Officer compensation, compensation philosophy, incentive plan and equity based compensation plan design, as well as approve executive management compensation guidelines. The Board has delegated the oversight of executive talent succession and approval of executive compensation as outlined in the Committee’s charter, taking into consideration the level of responsibility and contribution. The approval of all payouts under bonus incentive plans and all stock option grants have been delegated to the HRCG Committee. The HRCG Committee is also responsible for reviewing executive compensation disclosures made by the Corporation.

(ii) Corporate Governance Responsibilities

The HRCG Committee is responsible for assisting the Board in its oversight of Indigo’s corporate governance practices, making recommendations with respect to Board and Committee membership and reviewing corporate governance disclosures made by the Corporation. The HRCG Committee annually reviews Board committee memberships and chair appointments, recommending such appointments to the Board, with consideration for each director’s competencies and the time commitment involved. Compensation of the Board members is reviewed by the Human Resources, Compensation and Governance Committee and recommended to the Board for approval. The HRCG Committee regularly performs an assessment of the Board, its Committees and its members through the use of a confidential questionnaire completed by Board members on corporate governance matters and the effectiveness of the Board. Annual reviews of the Board mandate, Committee charters and position descriptions are also performed by the HRCG Committee. The HRCG Committee is responsible for establishing qualifications for new directors, and evaluating proposed directors against this criteria. Director candidates are selected and recommended by the HRCG Committee based on the candidate’s availability, expertise, experience, competencies and skills as required by the Board. The HRCG Committee is also responsible for the oversight of new director orientation and continuing education for all Board members. New Board members are provided with a comprehensive corporate information package of all relevant governance material and continuing education for Board members is provided with informative material being sent to the Board in advance of Board meetings and regular business update presentations from key business units. These educational sessions, which coincide with regular Board meetings, cover one or more aspects of the business, and typically follow an informal presentation and open discussion format. Board members also participate in store visits as part of ongoing director education. Responses to the Board assessment questionnaire provide feedback regarding areas of director interest/relevance for future continuing education sessions.

Both the Audit and the HRCG Committees have the authority to engage, or to request that management engage, outside advisors at the Corporation’s expense. The Board would also consider any such request by an individual member of the Board on its merits at the time it was made.

Ethical Business Conduct

The Corporation’s code of conduct (the “Code”) reflects its high standards in ethical business conduct and is applicable to all directors and employees of Indigo. A copy of the Code is available in the Corporate Governance Policies section of the Indigo website. The Corporation has also adopted a whistleblower policy pursuant to which directors, officers and employees are encouraged to report violations of the Code. Employee hotlines have also been established to enable employees to seek support and to report violations of the Code. The Corporation provides annual training with respect to ethical and compliance issues and ensures that each director and employee annually reviews and acknowledges, in writing, their understanding and acceptance of the Code. The Board has concluded that such measures are appropriate and sufficient to ensure compliance with the Code.

The Board encourages and expects directors to disclose any perceived conflicts and to abstain from voting on any such matters.

Shareholder Communications

Indigo keeps all shareholders well informed as to its financial performance, primarily by means of its annual and quarterly reports.

Upon request, Indigo will provide you with a copy of: (i) its current Annual Information Form; (ii) the comparative financial statements for its most recently completed financial year together with the accompanying auditors’ report and related management’s discussion and analysis (“MD&A”); and (iii) its interim financial statements and related MD&A for any subsequent fiscal periods, provided that Indigo may require payment of a reasonable charge if the request is made by a person who is not an Indigo shareholder.

With the approval of the Board, management has appointed Ms. Heather Reisman, Indigo’s Chief Executive Officer, as the individual responsible for receiving shareholder inquiries and dealing with shareholder concerns. Ms. Reisman endeavours to respond promptly and appropriately to all such requests and/or inquiries. While being guided by regulatory requirements and Indigo’s policies with respect to confidentiality and disclosure, Ms. Reisman is available for interviews by stakeholders, including analysts, the media, and investors. Regular investor/analyst calls are held after the release of financial results with participant information posted on the Indigo website prior to the call. Call transcripts are also available on the website.