In 2014, certain Canadian provinces joined the universe of other jurisdictions with a specific regulatory regime to attempt to improve the representation of women on corporate boards. In this article, we review the disclosure requirements implemented by the Ontario Securities Commission (OSC) and other Canadian securities regulators in 2014, discuss how the issue of board diversity has evolved in Canada since then, and identify some of the main themes that continue to emerge as part of the larger debate about board renewal. While there are differing views on these issues, it is clear that the representation of women on the boards is a multi-faceted and evolving issue: despite some progress to date, the research indicates that corporate Canada continues to lose women at high rates and that the representation of women on Canadian public company boards continues to lag behind other developed nations[i]. The resounding consensus from the Canadian Securities Administrators (CSA) and the likes of Catalyst and others is that there is much room for improvement in Canada, and important reasons why business, government, and industry leaders should take note and continue to provide the necessary impetus for the required change.
The Canadian mandatory disclosure model
In 2014 the OSC introduced new disclosure requirements aimed at providing more transparency regarding board and management composition.[ii] This approach (referred to in this article as the mandatory disclosure) does not require issuers to adopt any particular form of policy or target, but rather provides a framework for disclosure along with flexibility for issuers to address the principles underlying the disclosure in light of their own circumstances. Under this model, all TSX-listed and other non-venture Canadian public companies are required to annually disclose whether the following have been adopted:
- director term limits and other mechanisms of board renewal;
- written policies regarding the representation of women on the board;
- the board’s or nominating committee’s consideration of the representation of women in the director identification and selection process;
- the issuer’s consideration of the representation of women in executive officer positions when making executive officer appointments; and
- targets regarding the representation of women on the board and in executive officer positions.[iii]
Where an issuer has not adopted any of the components described above or does not consider the representation of women on its board or among its executive officers in identifying candidates for such positions, the issuer must disclose why it has not done so. Issuers are also required to disclose the number of women on the board and in executive officer positions, both in number and percentage.
The initial proposals relating to the mandatory disclosure were met with strong support for issuers to adopt gender diversity policies and mechanisms of board renewal, although some commentators reacting to early versions of the proposal viewed the mandatory disclosure as insufficient, advocating for targets and/or quotas as well as mandatory term limits and/or retirement. Additionally, some commentators noted the need for a broader definition of diversity that includes age, ethnicity and national origin.[iv] As we discuss in our subsequent articles, tenure and retirement have become integrally connected to the issue of board diversity, seen as a key means by which boards can encourage renewal and refreshment, while balancing with the benefits of the types of institutional knowledge and expertise typically represented by longer tenured directors. As part of the results of its 2016-2017 annual policy survey, Institutional Shareholder Services (ISS) has also confirmed that board refreshment continues to be a key concern for institutional investors with such investors expressing concern with high proportions of directors with a longer tenure and with longer tenures in general.
Proxy advisors such as Institutional Shareholder Services (ISS) and others have also added their voice to this dialogue.
While more robust requirements have been implemented by many countries, the United States is a notable exception. In the United States, issuers are required to disclose whether, and if so, how, a nominating committee considers diversity in identifying director nominees as well as how such policy is implemented and how the nominating committee assesses the policy’s effectiveness.[v] An analysis of the proxy statements of the S&P 100 companies found that companies “most frequently define diversity with reference to a director’s prior experience or other non-identity based factors, rather than his or her socio-demographic characteristics”.[vi] Certain state legislative responses have, however, been more robust. In 2015, Illinois passed a non-binding resolution urging public companies to have at least three women directors on boards of nine or more members, at least two on boards of five to nine members, and at least one on boards with fewer than five members, by 2018. Similar legislation also exists in California and Massachusetts. As a result, the Chair of the Securities Exchange Commissions (the SEC) has been criticized for not being more proactive in amending the board diversity disclosure requirements, although it has been reported that the SEC is currently reviewing the issue and considering whether additional rulemaking would be appropriate.[vii]
In this first of a series of articles on gender diversity issues we have looked at the disclosure rules that have been adopted. Subsequent articles will examine the results these disclosure rules have achieved, the recent Catalyst report in more detail and indications from regulators, proxy advisors and others about what to expect on the issue of board diversity, and in particular, gender diversity on boards.
[i] Catalyst, “Gender Diversity on Boards in Canada: Recommendations for Accelerating Progress”, June 7, 2016, http://www.catalyst.org/knowledge/gender-diversity-boards-canada-recommendations-accelerating-progress.
[ii] Amendment Instrument for National Instrument 58-101 Disclosure of Corporate Governance Practices (2014), 37 OSCB 11035, http://www.osc.gov.on.ca/documents/en/Securities-Category5/20141211_58-101_amd-governance-practices.pdf.
Note that the other Canadian regulators involved are Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Québec and Saskatchewan.
[iii] Proposed OSC Amendments to Form 58-101f1 Corporate Governance Disclosure of National Instrument 58-101 Disclosure of Corporate Governance PracticesVolume 37, Issue 3 (Supp-1), (2014), 37 OSCB, http://www.osc.gov.on.ca/documents/en/Securities-Category5/ni_20140116_58-101_pro-amd-f1.pdf
[iv] Comments received on OSC Staff Consultation Paper 58-401 Disclosure Requirements Regarding Women on Boards and in Senior Management, http://www.osc.gov.on.ca/documents/en/Securities-Category5/sn_20130730_58-401_disclosure-requirements-women.pdf.
[iv] Thomas Lee Hazen and Lissa Laskin Broome, “Board diversity and proxy disclosure”, University of Dayton Law Review, Vol. 37:1, July 2012; Mike Devreaux and Amanda Linett, “Striving for greater diversity on boards”, Canadian Securities Law Blog, November 1, 2013.
[v] Supra, note i.
[vi] SEC Chair Mary Jo White, Speech, “A conversation with Mary Jo White,” Keynote Session, 43rd Annual Securities Regulation Institute, San Diego, CA, January 26, 2016, available at http://www.sec.gov/news/speech/securities-regulation-institute-keynote-white.html.