Current diversity requirements in Canadian law is limited to disclosure obligations aimed at making the diversity of a corporation’s governance and leadership team transparent to all stakeholders. Driven by the rapid adoption of ESG (Environment, Social, and Governance) principles, many private entities have also taken this opportunity to reflect on their diversity and inclusion practices. Corporate governance diversity disclosure requirements offer a starting point to increase diverse board and senior management representation. Yet it’s clear that representation still doesn’t reflect the diversity of Canada’s workforce. Here’s a snapshot of the two key Canadian corporate governance diversity reporting obligations and their impact on Canadian corporate governance.
1. Non-Venture Reporting Issuers
Effective December 2014, amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices imposed new disclosure obligations on non-venture reporting issuers.
Application. The amendments apply to all non-venture issuers reporting in every Canadian province and territory except B.C. and P.E.I.
“Diversity”. Disclosure is limited to gender diversity, particularly, women.
Comply or Explain. The obligations follow a “comply or explain why” model. Securities regulators monitor circulars for disclosure compliance, assessing the robustness of disclosure and explanations for non-compliance.
Disclosure Details. Issuers must disclose this information in the proxy circular or the annual information form filed following its financial year:
- Whether the issuer has a written policy for the identification and nomination of women directors. If so, it must summarize prescribed aspects of the policy; if not, why.
- Whether the issuer’s board or nominating committee considers the level of representation of women on the board when identifying and nominating board candidates; if not, why.
- Whether the issuer’s board or nominating committee considers the level of representation of women in senior management when identifying and nominating executive officer candidates; if not, why.
- Whether the issuer has adopted a target for women directors and executive officers. If it has, it must disclose the target and the annual and cumulative progress it has made in achieving them; if not, why.
- The number and percentage of the issuer’s women directors and executive officers.
- Whether the issuer has adopted term limits for the directors on its board or other board renewal mechanisms; if not, why.
Impact. On November 4, 2021, the CSA issued its Review of Disclosure Regarding Women on Boards and in Executive Officer Positions Year Seven Report based on a review of 599 issuers. The Report indicates there’s progress – but there’s still a long way to go, especially in the C-Suite, and in the Mining, Oil & Gas, Technology and Biotechnology sectors that cumulatively represent 51% of the review sample. The Report also suggests, however, that corporations that have implemented the mechanisms they’re required to disclose have achieved a higher level of gender diversity than those that have not.
2. CBCA Public Corporations
Effective January 1, 2020, the mandatory director and senior management diversity reporting in Bill C-25 kicked in. The CBCA amendments attempt to harmonize the corporate governance framework of federally-regulated corporations with that of their provincially-regulated counterparts and existing securities laws.
Application. Diversity disclosure applies to all distributing corporations, including venture issuers.
“Diversity”. Diversity reporting obligations extend to “designated groups”, defined to include those “designated groups” under the Employment Equity Act, which include women, Indigenous peoples, persons with disabilities, and members of visible minorities.
Comply or Explain. The CBCA also adopts a “comply or explain” model. An omission of diversity disclosure exposes the corporation, and officers and directors personally, to a fine up to $5,000.00 or imprisonment for up to six months (or both). However, Corporations Canada states it will continue to “reach out” to “inform” and “remind” corporations of their disclosure obligations and “encourage” compliance. The threat of shareholder pressure, rather than punishment, might motivate corporations to report on – and increase – their diversity.
Disclosure. Corporations must provide this information at every annual meeting by including it in the notice or proxy circular:
- Whether the corporation has adopted a written policy relating to the identification and nomination of directors from designated groups. If so, it must summarize prescribed aspects of the policy; if not, why.
- Whether, and if so how, the corporation’s board considers the level of designated group representation on the board in the identification and nomination of directors.
- Whether, and if so how, the corporation considers the level of designated group representation in senior management when making “senior management” appointments, defined by reference to the definition of “executive officers” in National Instrument 51-102 – Continuous Disclosure Obligations to include the CEO, CFO, President, Chair, or any other individual who performs policy-making functions for the corporation.
- Whether the corporation has adopted a target or percentage of persons of designated groups to occupy board and senior management positions. If so, it must disclose the target and the corporation’s annual and cumulative progress in achieving that target; if not, why.
- The number and proportion of persons of designated groups in director and senior management positions.
- Whether the corporation has adopted term limits for the directors on its board or other mechanisms of board renewal; if not, why.
- Guidelines. To encourage and help corporations to disclose their diversity information in a consistent manner, Corporations Canada has published Guidelines.
Impact. In April 2022, Corporations Canada issued The Diversity of Boards of Directors and Senior Management of Federal Distributing Corporations – 2021 annual report, its second annual report. The findings suggest more corporations have board and senior management diversity on their minds during selection processes. But they also suggest this hasn’t translated into results: designated groups continue to be significantly under-represented on boards and in senior management of Canadian federal distributing corporations. Significant gains in the number of corporations considering diversity in the selections processes gives reason for optimism. However, the consistent disclosed reason for not adopting measures in key areas is that such consideration would “prevent the selection of qualified candidates”. This suggests continued opportunity for Corporations Canada to engage in conversations with corporations to better understand and overcome this hurdle. The next few years will reveal whether CBCA corporations will act to improve their corporate governance diversity.
To read our more detailed article on Canadian Governance Diversity Disclosure Obligations, click here.
Primrose Watson is a corporate & business lawyer based in McInnes Cooper’s Halifax office.
Sophia Mapara is a business & securities lawyer based in McInnes Cooper’s Moncton office. Both advise clients respecting board & senior management diversity.
This article is information only; it is not legal advice. McInnes Cooper excludes all liability for anything contained in or any use of this article. © McInnes Cooper, 2022. All rights reserved.