On July 30, the Ontario Securities Commission initiated a public consultation process that seeks to address the underrepresentation of women on boards and in positions of senior management of TSX-listed issuers. The consultation process follows a request by the Ontario government in the 2013 Ontario budget tabled last May that the OSC make recommendations as to the best way to move forward with enhanced gender diversity disclosure "to facilitate the participation of women on the boards and in senior management of major issuers”.
To that end, on July 30, 2013, OSC staff released Consultation Paper 58-401 Disclosure Requirements Regarding Women on Boards and in Senior Management (the Paper) that discusses potential changes to the corporate governance disclosure rule in the form of a “comply or explain” model of disclosure regarding representation of women on boards and in senior management.
Specifically, the potential changes to National Instrument 58-101 Disclosure of Corporate Governance Practices being considered by the OSC would require TSX-listed companies and other reporting issuers (but not venture issuers or investment funds) to provide disclosure as part of their annual summary of corporate governance practices (generally included in the annual proxy circular) in four areas:
- policies regarding the representation of women on the board and in senior management,
- consideration of the representation of women in the director selection process,
- consideration of the representation of women in the board evaluation process,
- certain quantitative information regarding the representation of women in the organization, on the board and in senior management.
Background findings and benchmarking information
The Paper builds on a high level overview of key findings in recent public reports, including by Catalyst, GMI Ratings and TD Economics, which point to the slow progress of gender diversity on Canadian boards, including by international standards. The Paper cites, for example, the March 2013 report issued by TD Economics Get on Board Corporate Canada which notes that, in 2011, women represented only 10.9% of board members of companies on the S&P/TSX Composite Index, that 43% of companies on the index had no women directors and that 28% had only one female board member.
The Paper goes on to canvass developments in Quebec (where, as of December 2011, boards of provincial crown corporations were required to have, as a group, an equal number of women and men), at the Canadian federal government level (which, in April 2013, introduced an advisory council to “promote the participation of women on public and private corporate boards”) and a range of regulatory approaches in other jurisdictions. These include consideration of developments:
- in the United States where, in its Release 33-9089 Proxy Disclosure Enhancements, the Securities and Exchange Commission (SEC), mandates disclosure of factors such as board diversity that are to be considered by a nominating committee when identifying nominees for director but does not define “diversity”,
- in Australia where, in 2010, the Australian Securities Exchange (ASX) implemented recommendations for listed companies on how to “structure the board to add value” and “promote ethical and responsible decision-making” through, among other practices, the adoption and disclosure of a diversity policy and a related “comply or explain” model of disclosure under the ASX listing rules,
- in the United Kingdom, where the Financial Reporting Council amended The UK Corporate Governance Code in 2012 to address diversity as a component of effective board practice. These amendments were made in response to the 2011 Women on Boards report issued by Lord Davies of Abersoch (updated in April 2013) which sets out 10 recommendations to increase the number of women on boards, including that FTSE 100 boards should aim for a minimum of 25% female representation by 2015, and
- in Europe where, in April 2013, the European Commission issued a proposal for a directive governing disclosure of non-financial and diversity information by certain large companies and groups, and where continental European countries have implemented a range of approaches, from “comply or explain” codes to binding quotas for female directors of listed companies.
The OSC’s proposed disclosure model
The disclosure model proposed by the OSC would eschew any kind of mandatory quota or recommended target in favour of a “comply or explain” rule that would require a non-venture issuer to disclose “whether it has a policy for advancing the participation of women in senior management roles and/or for the identification and nomination of female directors”, and, if so, to describe the specifics of the policy, how it is being implemented, any measurable objectives, annual and cumulative progress (including in quantitative terms, if measurable) and how the effectiveness of the policy is measured by its board or nominating committee.
Additional disclosure would be sought as to whether and how the board or its nominating committee consider the representation of women in the director selection process and whether and how adherence to the issuer’s policy regarding the representation of women is assessed in connection with the annual evaluation of the board and the nominating committee.
If an issuer does not have such a policy or does not consider the representation of women in the director selection process, it would have to “explain why not and identify any risks or opportunity costs associated with the decision not to do so”.
Issuers would also be required to disclose the proportion of women, as a percentage, of all employees in the whole organization, senior executive positions and on the board. “Senior executive positions” for the purposes of this disclosure would mean “executive officer” as currently defined in the corporate governance rule.
Although it has raised a specific question as to whether it is appropriate, in an implicit recognition of the potential costs associated with implementing the proposed disclosure model the OSC would specifically carve out venture issuers. Investment funds would also be exempt as the disclosure rule does not currently apply to such issuers.
The Paper sets out the following specific questions on which the OSC is seeking comment from investors, issuers and other market participants to help shape the OSC’s final recommendations to the Ontario government:
- What are effective policies for increasing the number of women on boards and in senior management?
- What type of disclosure requirements regarding women on boards and in senior management would be most appropriate and useful?
- Are the proposed scope and content of the model disclosure requirements appropriate? Are there additional or different disclosure requirements that should be considered? Please explain.
- What type of statistics, data and/or accompanying qualitative information regarding the representation of women in their organization should non-venture issuers be required to disclose? Should such disclosure be reported for the non-venture issuer only or for all of its subsidiary entities also?
- What practices should we recommend for facilitating increased representation of women on boards and in senior management?
- For example, should we recommend that non-venture issuers have a gender diversity policy? If so, should we set out recommended content for the policy?
- Should non-venture issuers be required to comply with the recommended practices or explain why they have not complied (i.e. a "comply or explain" model of disclosure)?
The comment period on the consultation Paper ends on September 27, 2013. The OSC is also planning to host a roundtable on the topic this fall. For more information, see OSC Staff Consultation Paper 58-401.