Canada’s New Corporate Governance Disclosure Rules: Impact on Gender Diversity in Executive Officer and Director Positions

At the end of 2014, Canada joined the growing ranks of countries taking action to encourage gender diversity in the management of its largest companies. On December 31, 2014, the securities regulatory authorities of Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Quebec, Saskatchewan and Yukon (the “participating jurisdictions”) implemented amendments to National Instrument 58-101 – Disclosure of Corporate Governance Practices (“NI 58-101”) and Form 58-101F1 Corporate Governance Disclosure (collectively, the “Rule Amendments”) requiring non-venture issuers in the participating jurisdictions to disclose their policies regarding, and their consideration of, the levels of representation of women on boards and in senior management, as well as their actual and any targeted figures for such representation.

In September of this year, the Canadian Securities Administrators (“CSA”) undertook a review of the disclosure of issuers subject to the Rule Amendments. In its resultant report, titled “CSA Multilateral Staff Notice 58-307 Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101 Disclosure of Corporate Governance Practices” (“CSA Staff Notice”), the CSA provided statistics on the implementation of such targets and policies, which, while suggesting fairly limited implementation overall, may suggest that the Rule Amendments could be encouraging issuers to implement their own policies regarding the participation of women in positions of corporate power and, in fact, to add more women to their boards.

Background

There is an unprecedented effort to increase gender diversity across boardrooms globally. Despite these efforts, the rate of women holding board seats has been slow to increase. As of 2015, just 15 percent of S&P 1500 Index board seats were held by women, up only 3.2 percent over the past seven years.¹ Canadian issuers fare only marginally better, with women accounting for 20.8 percent of the board seats of Canadian stock index companies in 2014.² A 2013 Ontario Securities Commission (“OSC”) survey of Toronto Stock Exchange (“TSX”) listed companies found that 57 percent of respondents had no women directors, while only 3 percent had a female chair of the board or female lead director.³

In response to gender disparity in the boardroom, a number of countries, including Norway, Italy, Belgium, France, Iceland and Germany, have adopted legislative quotas that require boards to maintain a mandated level of gender balance. In 2014, 21 countries had some type of regulatory requirement to comply or explain non-compliance with gender diversity quotas.⁴ Norway has had legislated quotas for publicly traded companies since 2008, and has achieved 35.5 percent of board seats being held by women, against its target of 40 percent.⁵ However, legislated quota results have been mixed. For example, despite having such legislation in place since 2012, women in Australia held just 19.2 percent of the board seats of publicly traded companies near the end of 2014.⁶

In Canada, there are a number of voluntary efforts aimed at improving women’s boardroom representation, including the Catalyst Accord, which aims to increase the overall proportion of FP500 board seats held by women to 25 percent by 2017, and groups such as the 30% Club, which launched in the U.K. in 2010 with the goal of achieving 30 percent women on FTSE-100 boards by the end of 2015. The Rule Amendments fit within a growing global trend of formal responses to gender disparity in the boardroom and provide a legislated effort that can operate alongside the voluntary efforts already in place to encourage gender diversity in Canada’s boardrooms.

Summary of the Adopted Comply or Explain Method

There are two main features of the OSC’s corporate governance framework: guidelines and disclosure requirements. National Policy 58-201 Corporate Governance Guidelines is intended to be consulted by issuers while drafting their own corporate governance practices, but is not prescriptive. By contrast, NI 58-101 sets out the disclosure issuers are required to provide concerning their corporate governance practices, usually as part of an issuer’s annual proxy circular. Venture issuers, those not listed on the TSX or certain other major global exchanges, must comply with the less extensive disclosure requirements of a different instrument.

Rather than implementing voluntary, non-prescriptive recommendations in the form of a guideline, the Rule Amendments were made to the prescriptive instrument and require non-venture issuers in the participating jurisdictions to provide information regarding their policies, consideration of, and any targets with respect to the representation of women on boards and in executive positions. If an issuer has not adopted any such policy, targets, or considered such representation, it must explain why it has not done so.

In particular, the Rule Amendments require issuers subject to that instrument to annually disclose:

• whether or not they have adopted a policy for the identification and nomination of female directors and, if so, to disclose 1) a short summary of the policy’s objectives and key provisions; 2) the measures taken to ensure that the policy has been effectively implemented; 3) annual and cumulative progress by the issuer in achieving the objectives of the policy; and 4) whether, and if so how, the board or its nominating committee measures the effectiveness of the policy. If an issuer has not adopted such a policy, then it is required to explain why it has not done so;

• whether, and if so how, the board or nominating committee considers the level of representation of women on its board in identifying and nominating candidates for election or re-election to the board and, if they do not, to disclose the reasons for not doing so;

• whether, and if so how, the issuer considers the level of representation of women in executive officer positions when making executive officer appointments and, if they do not, to disclose the reasons for not doing so;

• whether they have adopted targets regarding the number or proportion of women on their boards or in executive officer positions and, if they have not, to disclose why they have not done so. If an issuer has adopted such requirements, then it is required to disclose such targets and its annual and cumulative progress in achieving those targets; and

• the number and proportion of executive officers of the issuer, including all major subsidiaries, who are women, and the number and proportion of directors on the issuer’s board who are women.

As discussed further below, the Rule Amendments do not apply to issuers whose primary provincial regulatory authority is that of Alberta, British Columbia or Prince Edward Island and that are not listed on the TSX.

Jurisdictional Considerations

Not all provinces have adopted the Rule Amendments. The Alberta Securities Commission (“ASC”), in a concise response to the OSC’s invitation to participate in the implementation of the Rule Amendments, stated that requiring such disclosure of issuers was outside its jurisdiction. In understanding the objective of the Rule Amendments to be to increase the participation of women on boards and in executive positions, the ASC stated that it was not persuaded that this objective fell within the ASC’s mandate, which is to “protect investors and foster a fair and efficient capital market in Alberta.”

Interestingly, the ASC’s mandate is similar to that of the OSC, which is to protect investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets. However, unlike in the other provinces, the OSC’s study and public consultation process was prompted by statements in the May 2013 Ontario budget and a subsequent request from the Minister of Finance and the Minister Responsible for Women’s Issues.

The 2013 budget stated that the Ontario government “strongly supports broader gender diversity on the boards and in senior management of major businesses,” and would, with other stakeholders, “consider the best way for issuers to disclose their approaches to gender diversity, with a view to increasing the participation on boards and in senior management.” In the request made on June 14, 2013, the Ministers asked the OSC to undertake a public consultation process regarding gender diversity disclosure requirements and specifically to consider a “comply or explain” disclosure regime.

In articulating its mandate at the outset of the study and public consultation process, the OSC stated that the goal of implementing the proposed new disclosure requirements was to provide for “more effective boards and better corporate decision making by requiring greater transparency for investors and other stakeholders regarding the representation of women,” which transparency “is intended to assist investors when making investment and voting decisions.”⁷ This articulation of the OSC’s mandate did not include the more policy-oriented goals set out by the Ontario government of effecting an increase of women on boards and in senior management.

Contextual Considerations

Whether properly within the purview of securities regulatory authorities, encouraging the appointment of more women to boards and executive officer positions is becoming a goal of a greater number of Canadian companies. For example, the OSC reported that a majority of the stakeholders consulted as part of the Rule Amendments review and public consultation process agreed that “the representation of women on boards and in senior management engages legitimate corporate governance initiatives that affect the public interest.”⁸

Further, there has been recent support for the economic proposition that diverse boards make for stronger businesses. In one example, a 2014 Credit Suisse study shored up the conclusions of the bank’s original 2012 study that found that companies that have women in senior management positions perform better financially.⁹ While the study does not prove that the women themselves contribute to those organizations’ greater successes (it could be that better companies tend to hire more women or that women choose to work for more successful companies), many organizations cite the study or those like it as an economic reason that gender equality should be sought.

What’s New

On September 28, 2015, the CSA released its Staff Notice summarizing the findings from its review of the corporate governance disclosure of non-venture issuers as it relates to the Rule Amendments. The CSA Staff Notice summarizes the CSA’s review of the corporate governance disclosure of 722 non-venture issuers (“sample group”) listed on the TSX.

The CSA found that, among the issuers in the sample group, 49 percent have at least one woman on their board and 60 percent have at least one woman in an executive officer position. Further, 65 percent of such issuers disclosed that they had not adopted a written policy for the identification and nomination of women directors and 14 percent disclosed that they had adopted such a policy. With respect to targets, the CSA found that, among the issuers in the sample group, only 7 percent disclosed that they had a formal target for the appointment of women to the board, and only 2 percent of such issuers disclosed that they had a formal target in respect of the appointment of women to executive officer positions.

While these figures may not buoy the spirits of those with the goal of gender parity, certain figures cited by the CSA Staff Notice may indicate that the CSA’s comply or explain method may be working to effect such change. Specifically, of the issuers in the sample group, 15 percent said they added one or more women to their boards in the past year. Further, of the issuers that disclosed written policies, 48 percent of them say they were adopted or updated this year.

Aside from those figures, the CSA reported that the most significant indicators of whether issuers adopted initiatives to increase the representation of women on their boards or in executive officer positions were issuer size and industry. For example:

• 62 percent of issuers with a market capitalization under C$1 billion (U.S.$760.1 million) had no women on their board and 48 percent of such issuers reported having no women in executive officer positions;

• 60 percent of issuers with a market capitalization above C$2 billion (U.S.$1.5 billion) had at least two women on their board and 59 percent of such issuers disclosed having at least two female executive officers;

• 60 percent or more of issuers in each of the mining, oil and gas and technology industries had no women on their board; and

• 57 percent and 43 percent of issuers in the utilities and retail industries, respectively, had two or more women on their board.

Conclusion

While it may require a provincial government policy statement like that of the Government of Ontario for the Rule Amendments to be adopted by all of the Canadian securities regulators, reporting issuers incorporated under the Canada Business Corporations Act (“CBCA”) will soon be required to provide disclosure similar to that required by the Rule Amendments. The Federal Government stated in its 2015 Federal Budget that, as “increasing opportunities for women to serve on corporate boards and in leadership roles makes good business sense,” the 2015 Economic Action Plan will include proposed amendments to the CBCA to promote gender diversity among public companies. The Federal Government provided further that such amendments will be made using the “comply or explain” model of disclosure.

Concurrently with these regulatory changes, Canadian businesses are regularly joining initiatives aimed at gender equality in the boardroom. In light of the adoption of such initiatives across Bay Street — Canada’s Wall Street — and the changing disclosure landscape, issuers may wish to consider adopting gender diversity policies or preparing the disclosure required if they do not.

Pamela Hughes is a Partner in the Toronto office, Stefania Zilinskas is an Associate in the New York office and Shavone Hayes is an Articling Student in the Toronto office of Blake, Cassels & Graydon LLP. They may be contacted at pamela.hughes@blakes.com, stefania.zilinskas@blakes.com and shavone.hayes@blakes.com.