CP Canadian Pacific Kansas City Limited

Information Regarding Outstanding Shares and Principal Shareholders

As of March 15, 2017, there were 146,648,385 Shares issued and outstanding. Each Share carries one vote on each matter voted upon at the Meeting.

For information regarding the ownership of certain individuals, including directors and officer of the Corporation, see “Security Ownership of Certain Beneficial Owners and Management” on page 86.

VOTING INFORMATION

Please carefully read this section, as it contains important information regarding how to vote your common Shares of the Corporation (“Shares”). Canadian Pacific has sent or caused to be sent forms of proxy to the Corporation’s registered shareholders, and voting instruction forms and, in some cases, forms of proxy, to the Corporation’s non-registered shareholders.

Who Can Vote

The Board has fixed March 15, 2017 as the record date (the “Record Date”) for the purpose of determining shareholders entitled to receive the Notice of Annual Meeting of Shareholders (the “Notice”) and to vote at the Meeting or any adjournment or postponement thereof, either in person or by proxy. Only shareholders of record at 5:00 p.m. (Eastern Daylight Time) on the Record Date are entitled to vote at the Meeting. Each shareholder is entitled to one vote for each Share held.

Solicitation of Proxies

Management of Canadian Pacific is soliciting proxies in connection with this Proxy Statement and the Meeting. The cost of this solicitation will be borne by the Corporation. Proxies will be solicited by mail, in person, by telephone or by electronic communications. Canadian Pacific has retained Kingsdale Advisors as strategic shareholder advisor and proxy solicitation agent located at the Exchange Tower, 130 King Street West, Suite 2950, Toronto, Ontario, M5X 1E2 to assist with our communications with shareholders and solicitation of proxies. In connection with these services, Kingsdale Advisors will receive an initial fee of $66,000. In addition, Kingsdale Advisors will be reimbursed for disbursements and out-of-pocket expenses, as well as an additional $8 fee for each telephone call to or from Canadian Pacific shareholders and additional fees as determined by Canadian Pacific and Kingsdale Advisors.

Shareholders wishing to be represented by proxy at the Meeting must deposit a properly executed proxy with the Corporation or its agent, Computershare Investor Services Inc. (“Computershare”), or Kingsdale Advisors, not less than 24 hours prior to the time fixed for holding the Meeting (or any adjournment thereof). The time limit for the deposit of proxies may be waived or extended by the Chair of the Meeting at his or her discretion without notice. All Shares represented by a properly executed proxy will be voted or withheld from voting in accordance with the instructions of the shareholder on any ballot that may be called for and if the shareholder specifies a choice with respect to any matter to be acted upon, the Shares will be voted accordingly.

Exercise of Discretion and Voting by Management Proxyholder

Shareholders who have appointed a named appointee of management to act and vote on their behalf, as provided in the enclosed form of proxy or voting instruction form, and who do not provide instructions concerning any matter identified in the Notice, will have the Shares represented by such form of proxy or voting instruction form voted FOR the appointment of Deloitte LLP as the Corporation’s auditor, FOR the advisory resolution to approve CP’s compensation of its NEOs, and FOR each of the Nominees.

The enclosed form of proxy or voting instruction form to be used in connection with the Meeting also confers discretionary authority on the person or persons named to vote on any amendment or variation to the matters identified in the Notice and on any other matter properly coming before the Meeting. As of March 15, 2017, management is not aware of any such amendment, variation or other matter. If, however, any such amendment, variation or other matter properly comes before the Meeting, proxies will be voted at the discretion of the person or persons named on the enclosed form of proxy or voting instruction form. If you appoint a non-management proxyholder, please make them aware and ensure they will attend the meeting for the vote to count.

Registered Shareholder Voting Information

You are a registered shareholder if your name appears on your Share certificate. If this is the case, this Proxy Statement will be accompanied by a form of proxy. If you are a registered shareholder, there are two ways, listed below, that you can vote your Shares:

1) Voting by Proxy

You may appoint the management appointee or someone else that need not be a shareholder to vote for you as your proxyholder by using the enclosed form of proxy. A shareholder has the right to appoint a person or company other than the named appointee of management to represent such shareholder at the Meeting. To appoint a person or company other than the named appointee, write the name of the person or company you would like to appoint in the space provided. If you appoint a non-management proxyholder, please make them aware and ensure they will attend the meeting for the vote to count.

You may vote using any of the methods outlined on the form of proxy.

2) Voting in Person

As a registered shareholder, you may exercise your right to vote by attending and voting your Shares in person at the Meeting. Upon arriving at the Meeting, report to the desk of our registrar and transfer agent, Computershare, to sign in and revoke any proxy previously given. You do not need to complete or return your form of proxy if you intend to vote at the Meeting. If you appoint a non-management proxyholder, please make them aware and ensure they will attend the meeting for the vote to count.

To be valid, a proxy must be signed by the shareholder or his or her attorney authorized in writing. There are several ways to submit your form of proxy that are indicated on the form of proxy. Carefully review your form of proxy for these instructions.

Beneficial Shareholder Voting Information

If your Shares are not registered in your name and are held in the name of a nominee such as a trustee, financial institution or securities broker, you are a non-registered shareholder. If your Shares are listed in an account statement provided to you by your broker, those Shares will, in all likelihood, not be registered in your name.

Such Shares will more likely be registered under the name of your broker or an agent of that broker. Without specific instructions, Canadian brokers and their agents or nominees are prohibited from voting Shares for the broker’s client. Without specific instructions, U.S. brokers and their agents or nominees are prohibited from voting Shares for the broker’s client with respect to the non-binding advisory vote on the Corporation’s compensation of its NEOs, and the election of directors, but may vote such Shares with respect to the appointment of Deloitte LLP.

If you are a non-registered shareholder, there are two ways, listed below, that you can vote your Shares:

1) Giving Your Voting Instructions

Your nominee is required to seek voting instructions from you in advance of the Meeting. Accordingly, you will receive, or have already received, from your nominee either (i) a voting instruction form for completion and execution by you, or (ii) a form of proxy for completion by you, executed by the nominee and restricted to the number of Shares owned by you. These procedures are to permit non-registered shareholders to direct the voting of the Shares that they beneficially own.

Each nominee has its own procedures which should be carefully followed by non-registered shareholders to ensure that their Shares are voted at the Meeting. Please contact your nominee for instructions in this regard. You may vote using any of the methods outlined on the voting instruction form or form of proxy.

Additionally, Canadian Pacific may use the Broadridge QuickVote™ service to assist non-registered shareholders with voting their shares. Non-registered shareholders may be contacted by Kingsdale Advisors to conveniently obtain a vote directly over the telephone. Broadridge then tabulates the results of all instructions received and provides the appropriate instructions respecting the voting shares to be represented at the Meeting.

2) Voting in Person

If you wish to vote in person at the Meeting, insert your own name in the space provided on the voting instruction form or form of proxy to appoint yourself as proxyholder and follow the instructions of your nominee.

Non-registered shareholders who instruct their nominee to appoint themselves as proxyholders should, at the Meeting, present themselves to a representative of Computershare. Do not otherwise complete the voting instruction form or form of proxy sent to you as your vote will be taken and counted at the Meeting. If you appoint a non-management proxyholder, please make them aware and ensure they will attend the meeting for the vote to count.

Employee Share Purchase Plan Voting Information

Employees of the Corporation are eligible to participate in an employee share purchase plan (“ESPP”) under which they purchase Shares. Shares held by participants under the ESPP (“ESPP Participants”) are held in a custodial account until such time as the Shares held by ESPP Participants are withdrawn from the ESPP pursuant to its terms and conditions.

Voting rights attached to Shares held by ESPP Participants may be exercised through the use of a voting instruction form, which provides instructions regarding the voting of Shares held by ESPP Participants. ESPP Participants will have received this Proxy Statement together with the voting instruction form, or advice as to the availability of these documents electronically, from the Corporation’s registrar and transfer agent, Computershare.

Shares held by ESPP Participants will be voted in accordance with the instructions received from the employee.

Revocability of Proxy

A shareholder may revoke a proxy by depositing an instrument in writing executed by such shareholder or by such shareholder’s attorney authorized in writing (or, in the case of a corporation, by a duly authorized officer or attorney), either at the Office of the Corporate Secretary, Canadian Pacific, 7550 Ogden Dale Road S.E., Calgary, Alberta, T2C 4X9, or with the Chairman of the Meeting on the day of the Meeting, or by an adjournment or postponement of the Meeting, or in any other manner permitted by law.

In addition to any other manner permitted by law, a shareholder may change a previously submitted proxy or voting instruction by submitting a new proxy or conveying new voting instructions by any of the means described under “How do I vote if I am a REGISTERED shareholder?” or “How do I vote if I am a NON-REGISTERED shareholder?”, as applicable. Non-registered shareholders must ensure that any change in voting instructions is communicated to the applicable nominee sufficiently in advance of the time of voting at the Meeting. Non-registered shareholders who have voted and who wish to change their voting instructions should contact their nominee promptly if assistance is required.

Voting Deadline

To be effective, your proxy must be received not less than 24 hours prior to the time fixed for holding the Meeting (or any adjournment thereof). The time limit for the deposit of proxies may be waived or extended by the Chair of the Meeting at his or her discretion without notice.

The Corporation reminds shareholders that only the most recently dated voting instructions will be counted and any prior dated instructions will be disregarded.

Vote Tabulation

Proxies will be counted and tabulated by the Corporation’s registrar and transfer agent, Computershare. Computershare maintains the confidentiality of individual shareholder votes. However, proxies will be submitted to management where they contain comments clearly intended for management or to meet legal requirements.

Additional Information

If you have any questions about the information contained in this document or require assistance in completing your form of proxy or voting instruction form, please contact our strategic shareholder advisor and proxy solicitation agent Kingsdale Advisors, located at The Exchange Tower, 130 King Street West, Suite 2950, P.O. Box 361, Toronto, Ontario, M5X 1E2, or by telephone at North American Toll Free: 1-866-879-7649, Outside North America, Banks and Brokers Call Collect: 416-867-2272 or by email at contactus@kingsdaleadvisors.com.

Registrar and Transfer Agent Information

You may contact Computershare, Canadian Pacific’s registrar and transfer agent, by telephone, Internet or mail, as follows: by telephone 1-877-4-CP-RAIL / 1-877-427-7245 (within Canada and the United States) between the hours of 8:30 a.m. and 8:00 p.m. Eastern, or 1-514-982-7555 (international direct dial); by Internet at www.investorcentre.com/cp, by mail addressed to Computershare, 100 University Ave., 8th Floor, Toronto, Ontario, M5J 2Y1.

GENERAL INFORMATION

Note Regarding Presentation

CP is not currently considered a foreign private issuer pursuant to applicable U.S. securities laws. Accordingly, this proxy statement has been prepared in compliance with the disclosure requirements under the rules of the U.S. Securities & Exchange Commission (the “SEC”) applicable to U.S. domestic issuers, as well as in accordance with Canadian disclosure requirements.

Non-GAAP Measures

This Proxy Statement contains certain earnings measures that have no standardized meanings prescribed by generally accepted accounting principles in the United States of America and, therefore, may not be comparable to similar measures presented by other companies, including adjusted operating ratio, adjusted diluted earnings per share and free cash flow, included in the messages from the Chairman of the Board and the Chair of the Compensation Committee and under the heading “Compensation Discussion and Analysis”. These measures are defined and reconciled under the heading “Non-GAAP Measures” in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Corporation’s Annual Report on Form 10-K filed with the SEC and on SEDAR on February 16, 2017.

Forward-Looking Information

This Proxy Statement contains certain forward-looking information and forward-looking statements (collectively, “forward-looking information”) within the meaning of applicable securities laws relating, but not limited, to our compensation programs, operations, anticipated financial performance, business prospects, planned capital expenditures and strategies. This forward-looking information also includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words such as “anticipate”, “believe”, “expect”, “plan” or similar words suggesting future outcomes.

Undue reliance should not be placed on forward-looking information as actual results may differ materially from the forward-looking information. Forward-looking information is not a guarantee of future performance. By its nature, CP’s forward-looking information involves numerous assumptions, inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking information, including but not limited to the following factors: changes in business strategies; general North American and global economic, credit and business conditions; the availability and price of commodities; the effects of competition; industry capacity; shifts in demand; changes in laws and regulations, cost increases; claims and litigation; labour disputes; liabilities arising from derailments. The foregoing list of factors is not exhaustive.

These and other factors are detailed from time to time in reports filed by CP with securities regulators in Canada and with the SEC in the United States. Reference should be made to “Item 1A – Risk Factors” and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Information” in CP’s annual and interim reports on Form 10-K and 10-Q.

Forward-looking information is based on current expectations, estimates and projections and it is possible that predictions, forecasts, projections, and other forms of forward-looking information will not be achieved by CP. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.

Availability of Documents

Copies of the following documents are available free of charge on written request to the Office of the Corporate Secretary, Canadian Pacific, 7550 Ogden Dale Road S.E., Calgary, Alberta, T2C 4X9 or online at www.cpr.ca, www.sedar.com and www.sec.gov: the Articles and by-laws of the Company, Terms of Reference of the Board and each of the committees of the Board, the 2016 Annual Report to Shareholders on Form 10-K containing the consolidated financial statements for the year ended December 31, 2016, together with the auditor’s report and MD&A, the interim financial statements on Form 10-Q for periods subsequent to December 31, 2016, and the 2017 Proxy Statement.

The Corporation’s financial information is provided in the Corporation’s comparative annual financial statements and MD&A for the year ended December 31, 2016.

BUSINESS OF THE MEETING

1. FINANCIAL STATEMENTS

The audited consolidated financial statements of Canadian Pacific for the year ended December 31, 2016, and the report of the auditor, will be placed before the shareholders at the Meeting. These audited consolidated financial statements form part of the Annual Report of Canadian Pacific, which was mailed to registered shareholders and to all non-registered shareholders who requested it. Additional copies of the Annual Report may be obtained from the Corporate Secretary of Canadian Pacific upon request. The Annual Report is also available online at www.cpr.ca or www.sedar.com.

2. APPOINTMENT OF AUDITOR

Deloitte LLP was last appointed as Canadian Pacific’s auditor at the Company’s last annual meeting of shareholders, held on April 20, 2016. Deloitte was first appointed on May 12, 2011.

The Board recommends that Deloitte LLP be appointed as Canadian Pacific’s auditor until the close of the next annual meeting of shareholders. Unless otherwise instructed, the persons designated in the form of proxy or the voting instruction form, intend to vote FOR the appointment of Deloitte LLP as auditor of Canadian Pacific to hold office until the next annual meeting of shareholders at remuneration to be fixed by the Audit Committee. Representatives of Deloitte LLP are expected to be present at the Meeting, will have an opportunity to make a statement if they desire to do so, and will be available to respond to questions.

Vote Required for Approval

The appointment of Deloitte LLP as the Corporation’s auditor requires an affirmative vote of the Shareholders at the Meeting.

Audit and Non-Audit Fees and Services – 2016 & 2015

In accordance with applicable laws and the requirements of stock exchanges and securities regulatory authorities, the Audit Committee must pre-approve all audit and non-audit services to be provided by the independent auditor.

Fees payable to Deloitte LLP for the years ended December 31, 2016, and December 31, 2015, totaled $2,861,400 and $3,589,300, respectively, as detailed in the following table:

 

For the year ended December 31		Total 2016 ($)				Total 2015 ($)
Audit Fees			2,398,500				2,741,100
Audit-Related Fees			289,800				525,500
Tax Fees			147,000				322,700
All Other Fees			26,100				—
TOTAL			2,861,400				3,589,300

The nature of the services provided under each of the categories indicated in the table is described below.

Audit Fees

Audit fees were for professional services rendered for the audit and interim reviews of CP’s annual financial statements and services provided in connection with statutory and regulatory filings or engagements, including the attestation engagement for the report from the independent registered public accounting firm on the effectiveness of internal controls over financial reporting, the audit or interim reviews of financial statements of certain subsidiaries and of various pension and benefits plans of CP; special attestation services as may be required by various government entities; and general advice and assistance related to accounting and/or disclosure matters with respect to new and proposed U.S. accounting standards, securities regulations, and/or laws.

Audit-Related Fees

Audit-related fees were for assurance and related services reasonably related to the performance of the audit or review of the annual financial statements, but which are not reported under “Audit Fees” above. These services consisted of audit work related to securities filings; compliance review of third-party agreement; refinancing of subsidiary companies; and accounting training.

Tax Fees

Tax fees were for professional services related to tax compliance, tax planning and tax advice. These services consisted of: tax compliance including the review of tax returns; assistance with questions regarding corporate tax audits; tax planning and advisory services relating to common forms of domestic and international taxation (i.e. income tax, capital tax, goods and services tax, and value added tax); and access fees for taxation database resources.

 

18		CANADIAN PACIFIC		BUSINESS OF THE MEETING

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All Other Fees

Fees disclosed under this category would be for products and services other than those described under “Audit Fees”, “Audit-Related Fees” and “Tax Fees” above. These services relate to assistance with an insurance loss claim in 2016. There were no such services in 2015.

3. ADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS

In accordance with the Exchange Act of 1934 (the “Exchange Act”) and a related U.S. Securities and Exchange Commission (“SEC”) rule, we are providing shareholders with the opportunity to vote for or against, on a non-binding advisory basis, the compensation of our Named Executive Officers (“NEOs”) as disclosed in this proxy statement, commonly known as “say-on-pay”. As this is an advisory vote, the results will not be binding on the Board. However, when considering the Corporation’s approach to compensation for our NEOs, the Board will take into account the results of this vote, together with other shareholder feedback and best practices in compensation and governance. In 2016 the shareholders of the Corporation approved the holding of this vote on an annual basis.

Canadian Pacific is committed to providing shareholders with clear, comprehensive and transparent disclosure on executive compensation. For information on Canadian Pacific’s approach to executive compensation and what the Board has done since the last annual meeting, refer to the message from the Chair of the Management Resources and Compensation Committee beginning on page 5 and information under the heading “ Executive Compensation Summary” and “Compensation Discussion and Analysis” beginning on page 49.

The Compensation Committee has spent considerable time and effort recruiting top-level talent and developing our executive compensation program to fit extraordinary circumstances. The Board believes that the executive compensation program that has been implemented achieves the goal of maximizing long-term shareholder value while attracting, motivating and retaining world-class talent. We recognize that the proper structure of executive compensation is critical to both managing risk and appropriately incentivizing our NEOs. We have been successful in recruiting individuals with unique and demonstrated abilities to improve railway performance, and shareholders have enjoyed extraordinary results. We believe that our approach to executive compensation is fair and balanced, and creates incentives for our NEOs that are well-aligned with shareholders’ interests over the long-term.

The Board recommends that shareholders vote FOR the resolution set out below and, unless otherwise instructed, the persons designated in the form of proxy or the voting instruction form intend to vote FOR the following resolution:

“RESOLVED, on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, that the shareholders approve the compensation of the Named Executive Officers of Canadian Pacific as disclosed in the Corporation’s proxy statement (which disclosure includes the Compensation Discussion and Analysis, the compensation tables, and the narrative disclosures that accompany the compensation tables) delivered in advance of the 2017 annual meeting of shareholders in accordance with the compensation disclosure rules of the SEC and Canadian securities regulatory authorities.”

Vote Required for Approval

In order to be approved, the advisory resolution on the compensation of our NEOs requires an affirmative vote of the majority of the votes duly cast at the Meeting.

4. ELECTION OF DIRECTORS

Directors are elected annually by shareholders, each to hold office until the close of the next annual meeting of shareholders or until such person’s successor is elected or appointed. Between shareholder meetings, the Board may appoint additional directors.

Our governing documents provide that the Board shall consist of a minimum of five and a maximum of 20 directors. The Corporate Governance and Nominating Committee (the “Governance Committee”), with the assistance of an external search consultant if necessary, identifies and recommends to the Board the proposed nominees for appointment or election at each annual meeting of shareholders consistent with criteria approved by the Board. For additional information refer to “Statement of Corporate Governance – Nomination of Directors” on page 36.

CP is committed to Board diversity. In determining qualified nominees for election as directors of CP, the Governance Committee takes into account diversity considerations such as gender, age, cultural heritage and regional representation of candidates in order to ensure that the Board reflects the gender, age, cultural and geographic representation of the regions in which CP operates.

Pursuant to a resolution of the Board, 10 persons are to be elected as directors at the Meeting, each to hold office until the close of the next annual meeting of shareholders unless he or she resigns or is otherwise removed from office earlier. The persons named in the section “Nominees for Election to the Board” (the “Nominees”) beginning on page 21 will be presented for election at the Meeting.

The Board recommends that you vote FOR each of the Nominees. Unless otherwise instructed, the persons designated in the form of proxy and the voting instruction form intend to vote FOR the election of the Nominees. If, prior to the Meeting, any of the Nominees becomes unable or unwilling to serve, the persons designated in the form of proxy or voting instruction form will have the right to use their discretion in voting for such other properly qualified nominees.

Vote Required for Approval

The 10 Nominees receiving the highest number of FOR votes cast in person or by proxy at the Meeting will be elected to the Board.

 

BUSINESS OF THE MEETING		2017 MANAGEMENT PROXY STATEMENT			19

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Majority Voting Policy

CP has in place a Majority Voting Policy. Pursuant to the Majority Voting Policy, if a Nominee receives more “withheld” votes than “for” votes at the Meeting, he or she will be required to immediately tender his or her resignation. The Board would then determine, within 90 days of the Meeting, whether to accept or reject the resignation. Other than in extraordinary circumstances, the Board would accept a resignation under the Majority Voting Policy. For additional information refer to “Statement of Corporate Governance – Nomination of Directors” on page 36.

Advance Notice of Director Nominations

At the annual meeting of shareholders held on May 14, 2015, CP’s shareholders approved and adopted By-Law No. 2 of the Company (the “Advance Notice By-Law”), which establishes a framework for advance notice of nominations of directors by the shareholders of CP. Pursuant to the Advance Notice By-Law, if a shareholder intends to nominate a person for election as a director of CP at the Meeting, other than pursuant to a shareholder proposal, as described above, such nominations must comply with the procedures set out the Advance Notice By-Law, including providing written notice to the Corporation setting forth information about each proposed nominee not later than April 10, 2017. A copy of the Advance Notice By-Law was filed on SEDAR and EDGAR on Form 6-K on March 13, 2015.

 

20		CANADIAN PACIFIC		BUSINESS OF THE MEETING

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NOMINEES FOR ELECTION TO THE BOARD

INTRODUCTION

The Board is elected by shareholders to oversee the management of the Company and to ensure that the long-term interests of the shareholders are served. The Board is the ultimate decision-making authority within the Company except with respect to matters, such as the election of the directors, that are reserved for the Company’s shareholders.

Since the last annual meeting of shareholders there have been numerous changes to the Board. Since the last annual shareholders meeting, Dr. Anthony Melman and Mr. William Ackman resigned from the Board in order to allow them to focus on other interests and Mr. E. Hunter Harrison resigned from the Board concurrently with his retirement as CP’s Chief Executive Officer. Additionally, the Board, through the Governance Committee, engaged in a Board renewal project, in order to continue the transition of CP that began in 2012. This renewal resulted in the appointment of four new directors to the Board; Ms. Jill Denham and Mr. William R. Fatt on September 6, 2016, Ms. Jane Peverett on December 13, 2016 and Mr. Gordon T. Trafton II on January 1, 2017. Each of these individuals brings extensive and unique business experience to the Board.

To ensure the proper stewardship of CP, the Board needs to operate independently and needs to have the correct mix of relevant skills and experience, including industry knowledge, financial and accounting expertise, strategic planning, human resources and executive compensation experience and expertise in risk management, to understand and address the business challenges facing the Company. An effective Board also needs to include sufficiently diverse opinions and viewpoints, which is encouraged by having diversity of gender, age, cultural heritage and geographical representation. We believe that the Nominees meet all of the requirements. For additional information on the Nominees’ skills and experience considered by the Company, see “Director Skills Matrix” on page 37. For additional information of diversity at CP, see “Statement of Corporate Governance – Diversity at CP” on page 32.

BOARD SIZE AND TENURE

CP’s governing documents provide for the Board to consist of a minimum of five and a maximum of 20 directors. The Governance Committee assesses the optimal size annually, and believes the current size is appropriate for the Board to fulfill its responsibilities.

As of March 15, 2017 the average tenure of CP’s Board is two years, with three directors having tenure of greater than three years and seven directors having tenure of less than or equal to three years.

 

Gender		Age		Tenure

DIRECTOR OVERBOARDING

Director overboarding refers to the situation where a director sits on an excessive number of boards, which could result in excessive time commitments and an inability to fulfill their duties. The Board of CP addresses the matter of overboarding on a case-by-case basis. Prior to the recommendation of a director candidate, the Governance Committee reviews the number of public company boards that the candidate sits on and considers whether those commitments would create additional risk that the candidate would be unable to fulfill the significant commitment required to sit on the Company’s Board. Additionally, prior to any director of CP joining another Board, they are required to advise the Chairman of the Board and the Chair of the Governance Committee in order to ensure that the director will continue to provide the expected level of commitment to CP.

CP takes the policy guidelines of proxy advisory firms in both Canada and the United States into account when considering director candidates, during the Board’s annual review process and in the event that a current director is considering an additional outside board position. None of the Director Nominees are overboarded pursuant to these policies.

 

NOMINEES FOR ELECTION TO THE BOARD		2017 MANAGEMENT PROXY STATEMENT			21

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The Corporation considers an outside board to be any board of directors of a public company other than Canadian Pacific Railway Limited or its wholly owned subsidiary, Canadian Pacific Railway Company (“CPRC”). CPRC is the principal operating entity of CP in Canada and directly or indirectly owns all of the voting shares of all of CP’s other subsidiaries. All of the directors of the Corporation are also directors of CPRC and the two Boards meet concurrently. CPRC is a reporting issuer in Canada due to its outstanding debt securities.

 

No Director Nominee has attended less than 95% of the Board and Committee meetings held and, while CP maintains vigorous standards with respect to each directors’ engagement, there have not been any concerns raised by the Board or management with respect to the Director Nominees’ ability to fulfill their duties to CP.

DIRECTOR ATTENDANCE

Regularly scheduled Board and committee meeting dates are established approximately two years in advance. Special meetings are also scheduled as needed and these meetings can be called on short notice. In 2016, the Board called twelve unscheduled meetings, the Finance Committee called one unscheduled meeting, the Compensation Committee called two unscheduled meetings and the Governance Committee called two unscheduled meetings.

Directors are expected to attend all regularly scheduled Board meetings and meetings of committees on which they serve and to exercise best efforts to attend all special meetings. All directors are also invited to attend all of the regularly scheduled meetings of the committees. In 2016, the incumbent Nominees attended 99% of all Board and Committee meetings, as set forth below. Additionally, the independent directors met in executive sessions without management present at each of the regular meetings of the Board in 2016.

Board and committee meeting materials are typically provided to the directors in advance of meetings. If a director is unable to attend a meeting, the director provides his or her comments to the Chair, Chair of the committee or the Corporate Secretary in advance of the meeting, and the recipient will ensure those comments and views are considered at the meeting.

The following table is a summary of each incumbent Nominee’s attendance at Board and committee meetings in 2016:

 

Director		Board Meetings Attended		Committee Meetings Attended		Total Meetings Attended
J.R. Baird		17 of 17		12 of 12		29 of 29		100%
I. Courville		17 of 17		12 of 12		29 of 29		100%
K.E. Creel		17 of 17		N/A		17 of 17		100%
G.H. Denham (1)		5 of 5		4 of 4		9 of 9		100%
W.R. Fatt (1)		5 of 5		4 of 4		9 of 9		100%
R. MacDonald		16 of 17		12 of 12		28 of 29		97%
M.H. Paull (2)		13 of 14		8 of 8		21 of 22		95%
J.L. Peverett (3)		1 of 1		N/A		1 of 1		100%
A.F. Reardon (Chair)		17 of 17		19 of 19		36 of 36		100%
G.T. Trafton II (4)		N/A		N/A		N/A		N/A
Totals		108 of 110		71 of 71		179 of 181		99%

 

(1)	Ms. Denham and Mr. Fatt were appointed to the Board on September 6, 2016.

 

(2)	Mr. Paull was unable to attend one unscheduled meeting of the Board as adequate notice of at least 24 hours was not provided. Mr. Paull was updated on the nature and business of the meeting and waived notice to allow the meeting to proceed.

 

(3)	Ms. Peverett was appointed to the Board on December 13, 2016.

 

(4)	Mr. Trafton was appointed to the Board on January 1, 2017.

 

22		CANADIAN PACIFIC		NOMINEES FOR ELECTION TO THE BOARD

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DIRECTOR NOMINEE PROFILES

The following tables provide information on the Nominees. Included in these tables is information relating to the Nominees’ current membership on committees of the Board and other public company directorships held in the past five years. The profiles also show the present principal occupation and principal occupations held in the past five years, if different. In addition, the profiles show securities of CP held as of March 15, 2017 by each of the Nominees, and whether they meet or exceed minimum shareholding requirements. Certain other personal information is also included.

Notes:

Ms. Denham, served as a director of Penn West Petroleum between June 2012 and June 2016. Penn West Petroleum was subject to cease trade orders on its securities subsequent to the announcement in July 2014 of the review of its accounting practices and restatement of its financial statements. Those cease trade orders ceased effect as of September 23, 2014.

Ms. Peverett was a director of Postmedia Network Canada Corp. (“Postmedia”) between April 2013 and January 2016. On October 5, 2016, Postmedia completed a recapitalization transaction pursuant to a court-approved plan of arrangement under the Canada Business Corporations Act under which approximately US$268.6 million of debt was exchanged for shares that represented approximately 98% of the outstanding shares at that time; and Postmedia repaid, extended and amended the terms of its outstanding debt obligations.

STATEMENT OF CORPORATE GOVERNANCE

BOARD OF DIRECTORS

The Board and management believe that good corporate governance practices are essential to the effective management of CP and to the protection of its investors, employees and other stakeholders. The Board has developed Corporate Governance Principles and Guidelines (“Governance Guidelines”), available on our website at www.cpr.ca, which set out the Corporation’s governance standards and requirements. CP’s corporate governance practices fully comply with or exceed the requirements of the Canadian Securities Administrators (“CSA”) National Policy 58-201 Effective Corporate Governance, item 407 of Regulation S-K of the SEC and the corporation governance guidelines of the NYSE.

The Governance Guidelines provide that the Board is the ultimate decision-making authority within the Corporation, except with respect to those matters, including the election of directors, which are reserved to shareholders. As the Board has plenary power, its Terms of Reference, found at www.cpr.ca, are intended not to limit the power of the Board but to assist it in the exercise of its powers and the fulfillment of its duties.

Independent Directors

The Board has adopted standards for director independence based on criteria of the NYSE, SEC and CSA. The Board annually conducts, through a combination of questionnaires, biographical reviews and discussions, a comprehensive assessment of all business and other relationships and interests of each director vis-à-vis the Corporation and its subsidiaries and has determined that each director, except for Mr. Keith Creel, is independent of the Corporation in accordance with the standards for independence established by the NYSE, and NI 58-101 Disclosure of Governance Practices and that each member of the Audit Committee meets the additional independence standards established for audit committee members under Section 10A(m)(3) and Rule 10A-3(b)(1) of the Exchange Act, and NI 52-110 Audit Committees. Mr. Creel is not independent by virtue of the fact that he is the President and Chief Executive Officer of the Corporation.

Other Board Memberships and Interlocks

Several of the directors of CP are also directors of other public companies. Information regarding the other public company directorships of the Director Nominees can be found under each of their biographies under the heading “Nominees for Election to the Board – Director Nominee Profiles” beginning on page 23. The Governance Committee considers it to be good governance to avoid interlocking relationships if possible. No CP Board Members sit on the same board of directors of any outside public company.

Independent Chair

The Chairman of the Board, Mr. Reardon, is an independent director. He has served as Chairman of the Board since July 20, 2015. The Chairman of the Board presides at meetings of shareholders and directors. He also serves as an advisor to the CEO and other members of senior management. His mandate provides, among other things, that he is responsible for establishing and ensuring:

Executive Sessions

The Board holds two in-camera executive sessions at each regularly scheduled meeting, the first includes the President and CEO, and then a second that includes only independent directors. Additionally, the Audit Committee and the Compensation Committee include at least one executive session of independent directors at the beginning and/or end of each meeting. Other standing committees determine at each regularly scheduled and ad-hoc meeting whether an executive session is necessary. At each executive session, the Chairman of the Board or the independent Chair of the applicable committee presides over the executive session.

Access to Independent Advisors

The Board and its committees have the authority to retain independent financial, legal, compensation and other advisors.

Director Attendance

Each director is expected to attend each meeting of the Board and the Board committees of which he or she is a member. The attendance record of each incumbent Nominee for all Board and committee meetings held in 2016 is set out under “ Nominees for Election to the Board – Director Attendance ” on page 22. In addition, regularly scheduled Board and committee meetings are held sequentially and all directors are invited to attend each of the committee meetings.

COMMITTEES OF THE BOARD

The Board fulfills its responsibility for the overall oversight of the Company, in part, through the activities of its four Committees. The responsibilities of the Committees are summarized below.

CP’s Board has approved and annually reviews and revises where necessary the terms of reference for each of the Committees as well as written position descriptions for the independent Chairman of the Board, Committee Chairs, and CEO. These documents are available at http://www.cpr.ca.

The Board’s four Committees are comprised solely of directors who are independent and directors who are not independent do not participate in selecting members.

30		CANADIAN PACIFIC		STATEMENT OF CORPORATE GOVERNANCE

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The following table sets out committee members as at March 15, 2017:

 

Director

Independent

Audit Committee

Governance Committee

Finance Committee

Compensation Committee

J.R. Baird

✓

I. Courville

✓

K.E. Creel

G.H. Denham

✓

W.R. Fatt

✓

R. MacDonald

✓

M.H. Paull

✓

J.L. Peverett

✓

A.F. Reardon

✓

G.T. Trafton II

✓

= Committee Chair         = Committee Member

All directors are invited to attend every committee meeting and committee meetings are scheduled sequentially in order to allow attendance.

BOARD MANDATE

Strategic Planning

The Board oversees the development, execution and fulfillment of CP’s strategic goals. This responsibility includes a strategic planning process whereby, prior to approval by the Board of CP’s multi-year strategic plan (the “Strategic Plan”): (i) the Finance Committee reviews and makes recommendations on the financial aspects of, and strategic options and opportunities associated with, the Strategic Plan; and (ii) the Board as a whole reviews management’s proposed strategy, plans and objectives within the Strategic Plan that support continuous improvement in operating performance. As part of these reviews, the Finance Committee and Board consider and discuss the key issues, assumptions, risks, opportunities and strategies that relate to the development and implementation of the Strategic Plan.

One Board meeting per year is specifically set aside for a substantial strategic planning session in which the Board reviews and discusses the Strategic Plan developed by management, following which the Board provides its approval. As part of this, the Board considers CP’s major opportunities, priorities and the risk impact of the Strategic Plan, and reviews and approves CP’s financial objectives, including significant capital allocations. Subsequently, it oversees the implementation of the Strategic Plan and monitors CP’s performance against the plan.

Succession Planning

The Board and the Compensation Committee are actively engaged in the succession planning processes. A detailed and documented process exists which includes reviewing the depth and diversity of succession pools for the CEO, CFO, senior operations executives and other key leadership roles. The Compensation Committee and Board review at least annually the Corporation’s leadership and development strategies, succession plans for key leadership roles, as well as plans and programs for the assessment and development of senior talent.

The Board provides opportunities for directors to get to know employees who have been identified as succession candidates. These individuals make presentations to the Board and are invited to functions where they can interact with directors more informally.

The Compensation Committee reviews, reports on and, where appropriate, provides recommendations to the Board on the structure and reporting relationships of senior management, the appointment of persons to the rank of Vice-President and above, and the leadership development of senior management.

DIVERSITY AT CP

CP is committed to Board diversity, including with respect to gender, age, cultural heritage and geographical representation and has therefore adopted a diversity philosophy that reflects CP’s ongoing commitment to maintaining and increasing diversity at the Board level. CP’s diversity philosophy can be found on the Company’s website at www.cpr.ca under “Corporate Governance”. CP is also a founding member of the Canadian Board Diversity Council, an organization that is dedicated to advancing diversity on Canadian boards and a member of the 30% Club, a leading international organization created with the aim of developing a diverse pool of talent for all businesses through the efforts of members who are committed to better gender balance at all levels of their organizations.

The Governance Committee and the Board do not adhere to any quotas or specific targets in determining Board membership as we do not believe that it is in the Corporation’s best interest to implement arbitrary targets with respect to the composition of the Board. However, CP’s diversity philosophy states that the Governance Committee will take into account the diversity considerations, such as gender, age, cultural heritage and regional representation of candidates when identifying and recommending qualified director nominees in order to ensure that the Board reflects the gender, age, cultural and geographic representation of the regions in which CP operates. The Governance Committee’s thorough investigation and nominating process, including the engagement of an external search consultant where necessary, acts to ensure implementation of CP’s Governance Principles and Guidelines respecting director nominations, including diversity.

In 2016, the Governance Committee engaged in a renewal process that resulted in the appointment of four new directors since the last annual meeting of shareholders, including two women. During this renewal process the Governance committee ensured that top female candidates were included in the search process and vetting. Due to CP’s ongoing commitment to diversity of experience and competencies as well as through the regular review and consideration of the Board’s skills matrix, CP’s Board currently consists of four women representing 40% of the Board and includes representation from numerous regions in Canada and the United States. In addition, the Chair of both the Compensation Committee and the Governance Committee, two key committees at CP, are female.

CP encourages the advancement of women and other individuals with diverse backgrounds at the Corporation through its employment equity program. CP has put in place an in-depth Diversity and Employment Equity program pursuant to the Employment Equity Act (Canada) to remove workplace barriers at all levels that impede or prevent the inclusion of qualified individuals and minority groups, including women, from consideration for positions. CP has not implemented quotas or specific targets with respect to gender diversity at the Executive Officer level other than with respect to CP’s Diversity and Employment Equity Program. CP believes that the Diversity and Employment Equity Program encourages the advancement and employment of women and that arbitrary targets are not in the best interests of CP in obtaining the highest calibre Executives. CP does not currently have any female executive officers.

RISK OVERSIGHT

The Board has overall responsibility for risk oversight as a whole and specifically oversees risks related to business operations, health, safety, security and environment, including relating to implementation of business plans and opportunities, rail plans and disaster planning. The Board reviews and discusses directly the key issues, assumptions, risks, opportunities and strategies related to the development and implementation of the Corporation’s operations. All Committees of the Board have a role in risk oversight, as follows:

Governance

The Board and its Governance Committee are responsible for developing CP’s approach to corporate governance. This includes annual reviews of the Corporate Governance Principles and Guidelines, as well as the terms of reference for the Board and each of its committees.

Internal Controls and Certification

The Board and its Audit Committee oversee the integrity of the internal control and management information systems of the Corporation and its subsidiaries, which are designed, monitored and periodically reviewed by the CEO, the CFO, Controller, and are also periodically reviewed by the Internal Audit Department. Such systems are also examined periodically by CP’s external auditor. On a quarterly basis, all senior officers are required to review the operation of the key internal controls within their respective areas of responsibility, report any changes to the Office of the Controller, and provide written confirmations as to the operation and effectiveness of such controls. Management has, in accordance with the requirements of Section 404 of the Sarbanes Oxley Act, assessed the effectiveness of its internal controls over financial reporting in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control – Integrated Framework (2013)” and has reported to the Audit Committee. Based on this assessment, management determined that CP maintained effective control over financial reporting as of December 31, 2016.

Annually and quarterly, the CEO and CFO certify that they are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting for both the Corporation and CPRC.

These certifications have been filed with the SEC as an exhibit to our annual report on Form 10-K and will be filed as an exhibit to our interim reports on Form 10-Q, and, prior to January 1, 2016, on our annual report on Form 40-F or furnished to the SEC on Form 6-K as a foreign private issuer, as applicable. As an issuer listed in Canada and the United States, CP fulfills Canadian requirements by filing these certifications annually and quarterly.

In addition, the CEO and CFO, following review by senior management and CP’s Disclosure Policy Committee, also certify that our annual and quarterly filings do not contain an untrue statement of material fact, or omit to state a material fact, and that the financial statements and other financial information included in the annual and quarterly filings fairly present, in all material respects, CP’s financial condition, the results of our operations and cash flows.

COMMUNICATION AND SHAREHOLDER ENGAGEMENT

The Board believes that regular and constructive communication is an important part of creating an open, candid and productive dialogue. The Board annually communicates information about the Board and individual directors, the Company’s corporate governance and executive compensation practices through the Company’s management proxy circular.

Shareholders may themselves initiate communications directly with the Board. To do so, shareholders should communicate their questions or concerns to the independent directors through the Chairman of the Board by delivering a sealed envelope, marked “confidential”, to:

Chairman of the Board

c/o Office of the Corporate Secretary

Canadian Pacific

7550 Ogden Dale Road SE

Calgary, AB T2C 4X9

Email: shareholder@cpr.ca

Although communications may be submitted anonymously, parties are encouraged to identify themselves so that the Chair of the Board may acknowledge the communication.

In 2016 members of the Board of Directors began a formal shareholder engagement program that involved in-person meetings with institutional shareholders, shareholder advocacy groups and two proxy advisory firms. The outreach and engagement program is summarized in the diagram below.

For additional details regarding the topics discussed and outcomes resulting from these engagement activities please refer to the message from the Chair of the Management Resources and Compensation Committee on page 5 as well as the Compensation Discussion and Analysis starting on page 51.

ETHICAL BUSINESS CONDUCT

Code of Business Ethics

The Corporation’s Code of Business Ethics (the “Code”) specifically addresses, among other things, conflicts of interest, protection and proper use of corporate assets and opportunities, confidentiality of corporate information, fair dealing with third parties, compliance with laws, rules and regulations and reporting of illegal or unethical behaviour. The Code applies to all directors, officers and employees, both unionized and non-unionized, of the Corporation and its subsidiaries in Canada, the United States and elsewhere, and forms part of the terms and conditions of employment of all such individuals. All directors have signed acknowledgments that they have read, understood and agree to comply with the Code, and they annually confirm compliance. Annually, officers and non-union employees are required to acknowledge that they have read, understood and agree to comply with the Code. Contractors engaged on behalf of the Corporation or its subsidiaries must undertake, as a condition of their engagement, to adhere to principles and standards of business conduct consistent with those set forth in the Code. The Code is, and all amendments to the Code, and all waivers of the Code with respect to any director or Executive Officer will be, posted on CP’s website and provided in print to any shareholder who requests them.

Code of Ethics for Chief Executive Officer and Senior Financial Officers

A Code of Ethics for the CEO and Senior Financial Officers applies to the Corporation’s CEO, CFO and Controller. All amendments to the code, and all waivers of the code with respect to any of the officers covered by it, will be posted on CP’s website and provided in print to any shareholder who requests them.

Monitoring of Ethics Codes

The Governance Committee, with the assistance of the Audit Committee, is responsible for periodically reviewing, and if appropriate recommending changes to, the Code and the Code of Ethics for the CEO and Senior Financial Officers of the Corporation, monitoring compliance with the codes, and reviewing, and if appropriate approving, waivers from compliance therefrom for directors or Executive Officers and promptly disclosing such waivers to the shareholders.

The Governance Committee did not approve any waivers of the codes for any directors or Executive Officers during 2016.

Related Party Transactions

If a director has a material interest in a transaction or agreement involving the Corporation they are required to disclose that interest to the CEO and the Chairman of the Board, and will not participate in any discussions or votes concerning such transactions. In addition, the Board annually reviews related party transactions in conjunction with making director independence determinations. Pursuant to the Code of Business Conduct, all employees, including officers of the Corporation are required to report related party transactions. The Corporation requires senior management employees to annually confirm any related party transactions that they are party to or that have been reported to them during the year. These are reviewed by the Corporation’s accounting and legal departments to ensure appropriate reporting. During 2016 there were no transactions between the Corporation and related persons as described in Item 404 of Regulation S-K. For the purposes of the foregoing, “related person” is defined as (i) a director, nominee director or executive officer of the Corporation; (ii) an immediate family member of a director, nominee director or executive officer, or (iii) a beneficial holder of greater than 5% of the Corporation’s shares or an immediate family member of such holder.

Promotion of Ethical Culture

The Board promotes a culture of ethical business conduct and sets the tone for a foundation of high business standards, integrity and respect.

Insider Trading and Disclosure Policies

The Board has approved a disclosure and insider trading/reporting policy. It is available on CP’s website at www.cpr.ca and reflects the commitment of the Board and management to promote timely, factual and accurate communications to the investing public. Among the matters addressed in the policy are guidelines on CP’s interaction with analysts and the public and measures to avoid selective disclosure.

The Board has also appointed a Disclosure Policy Committee, currently comprised of the Company’s Chief Financial Officer, Chief Legal Officer and Chief Risk Officer. The committee reports to the Board and is responsible for overseeing and monitoring disclosure matters and implementing additional policies and procedures, where necessary. The committee reviews all major disclosure documents. These documents are also approved by the Board and/or one or more of its committees, in each case before they are distributed. Under the direction of the CEO and CFO, the Disclosure Policy Committee also oversees the Corporation’s disclosure controls and procedures and provides quarterly reports to the Audit Committee.

NOMINATION OF DIRECTORS

Nomination Process

Directors are elected annually by shareholders, each to hold office until the close of the next annual meeting of shareholders or until such person’s successor is elected or appointed. Between shareholder meetings, the Board may appoint additional directors.

The Governance Committee, with the assistance of an external search consultant if necessary, identifies and recommends to the Board qualified director nominees for appointment or election at the annual meeting of shareholders consistent with criteria approved by the Board which takes into account:

The requirements derived from this process are used in determining whether, and how many, new directors should be added to the Board. The Board considers a skills matrix and regularly reviews and updates, as applicable, the industries, regions and companies where director candidates meeting the skills required by CP are most likely to be identified, and will, if necessary or deemed advisable, retain outside advisors to assist in the identification of director candidates. A table identifying some of the current skills and experience of the Nominees is set out under the heading “Nominees for Election to the Board – Director Skills Matrix” on page 37.

The Governance Committee also considers director nominees, if any, recommended by the shareholders for election as directors.

Evergreen Process

Each year the Governance Committee reviews the composition of the Board in order to ensure it has the best representation of skills and experience. This information is compiled through the use of a competency/skills matrix that outlines the areas of expertise and experience for each director. The skills matrix currently in use by the Board is provided below under the heading “Director Skills Matrix” on page 37.

In line with CP’s needs, the Governance Committee reviews and updates, as applicable, the industries, regions and companies where director candidates meeting the skills required by CP are most likely to be identified.

Term Limits and Retirement Age

The Board believes that the need to have experienced directors who are familiar with the business of CP must be balanced with the need for renewal, fresh perspectives and a healthy skepticism when assessing management and its recommendations. The average age of CP’s directors is 59 and the average director tenure at CP is currently two years with directors ranging from less than one year’s experience to five years on the Board. In November 2013, the Board approved removing the mandatory retirement age for directors. After considering the director profile at CP, the Board has determined that neither a mandatory retirement age nor term limits are appropriate for the Corporation. Instead, the Board has implemented a more comprehensive assessment process that evaluates the performance, skills and contribution of each director on an annual basis, as well as an ongoing assessment of the outside activities of each director to ensure that each director continues to meet the standards and requirements of the Board. The Board believes that this is the preferable route to Board refreshment.

Majority Voting Policy

In an uncontested election of directors, a director is required to immediately tender his or her resignation if that director receives more “withheld” votes than “for” votes. The Governance Committee would be expected to recommend that the Board accept the resignation except in extenuating circumstances and the Board will act upon the recommendation of the Governance Committee within 90 days of the certification of the shareholder vote. A director who has tendered his or her resignation pursuant to the majority voting policy shall not participate in Board or Governance Committee deliberations concerning the resignation. The majority voting policy is set forth in CP’s Governance Guidelines, which can be found on the Company’s website at www.cpr.ca under “Corporate Governance”.