It has been approximately nine years since the Ontario Securities Commission (OSC) first implemented the “comply-or-explain” regime that requires companies listed on the Toronto Stock Exchange (TSX) either to disclose information about gender diversity (including the number of women on their boards and their policies on diversity) or to explain why they are not doing so. Since then, a number of other key developments have taken place in the corporate diversity context. Proxy advisers Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. (Glass Lewis) have updated their guidance and the federal government has amended the Canada Business Corporations Act (CBCA), all with a focus on promoting a range of diversity characteristics in addition to gender. Despite these developments, progress has been slow in Canada; the overall representation of women and other underrepresented groups on boards and in senior executive officer positions still does not reflect the demographics of the Canadian population or Canadian society's expectations for a more diverse corporate environment.
In this article, we refresh our discussions from the 2019 and 2020 editions of Davies Governance Insights regarding the legal framework on diversity in Canada and examine this framework's overall impact, including the effect of the 2020 CBCA amendments that came into force more than three years ago. We also consider notable diversity-related developments, which suggest that the existing regulatory and legal framework for diversity in both Canada and the United States is likely to undergo more significant change in the years to come and that stakeholders will continue to consider diversity when making investment and voting decisions.
Impact of Existing Diversity Framework in Canada
THE CURRENT LEGAL FRAMEWORK
In the 2019 and 2020 editions of Davies Governance Insights, we provided a detailed overview of the evolving legal framework relating to diversity in Canada. The current legal framework can be summarized as follows:
- As a result of amendments to the CBCA that came into effect on January 1, 2020, all CBCA public companies are required to disclose information about their policies, practices and metrics related to the diversity of their boards and senior management teams annually. In particular, CBCA public companies are now required to provide disclosure regarding four “designated groups” – women, members of visible minorities, Indigenous peoples (First Nations, Inuit and Métis) and persons with disabilities.
- All Canadian public companies are required to comply with Canadian securities laws – specifically, National Instrument 58-101 – Disclosure of Corporate Governance Practices (NI 58-101) – that delineate disclosure obligations to a company's approach to gender diversity, including data regarding the representation of women on boards and in executive positions, but do not extend to the representation of other underrepresented groups. Like the CBCA, NI 58-101 implements a comply-or-explain regime. It neither mandates diversity practices and disclosure beyond gender diversity nor requires companies to adopt gender diversity policies and practices, targets or quotas. However, as discussed below, the Canadian Securities Administrators (CSA) is currently seeking comments on two very different approaches to amending NI 58-101.
THE CBCA AMENDMENTS
The year 2021 marked the second year that CBCA public companies were required to comply with the new requirements resulting from the CBCA amendments. In March 2022, Corporations Canada released its 2021 Annual Report – Diversity of Boards of Directors and Senior Management of Federal Distributing Corporations (CBCA Report) – which reviewed 475 proxy circulars filed by CBCA public companies for meetings held in 2021. The CBCA Report compared the diversity data from 2021 with the baseline data from 2020. Notable findings from the CBCA Report include the following:
- Only 55% of CBCA public companies have at least one woman on their boards; however, women hold only 20% of all board seats.
- Only 23% of CBCA public companies have at least one member of a visible minority on their boards; only 2% have at least one Indigenous person on their boards; and only 2% have at least one person with disabilities on their boards. Members of visible minorities hold only 7% of all board seats, and persons with disabilities and Indigenous persons each hold only 0.4% of all board seats.
- – Women hold 25% of all senior management positions; members of visible minorities hold 9% of all senior management positions; persons with disabilities hold 0.7% of all senior management positions and Indigenous persons hold 0.4% of all senior management positions.
- While 18% of CBCA public companies have set targets for the representation of women on their boards, only 4% have set targets for the representation of visible minorities on their boards and only 2% have set targets for the representation of persons with disabilities or Indigenous persons on their boards
Although the CBCA Report shows that some progress has been made, it also illustrates that there continues to be a disparity between the representation of the four designated groups and the Canadian population. According to Employment Equity in the Public Service of Canada for Fiscal Year 2019 to 2020, 52.7% of the Canadian population available to work in 2019–2020 were women; 15.3% were members of visible minorities; 9% were persons with disabilities; and 4% were Indigenous persons. As noted above, these numbers are not reflected in the boards and senior management of CBCA public companies.
DIVERSITY AND TRENDS: GENDER AND BEYOND
We have continued to track developments in gender diversity disclosure since the OSC first implemented the comply-or-explain disclosure regime under NI 58-101 in 2015. Prior editions of Davies Governance Insights detail extensive data and analysis on issuers' progress toward meeting various diversity measures.
The overall representation of women and other under represented groups on boards and in senior executive officer positions still does not reflect the demographics of the Canadian population or Canadian society's expectations for a more diverse corporate environment.
As Tables 1 and 2 illustrate, consistent progress has continued in the representation of women on boards, although the progress has been slow.
TABLE 1: Diversity Progress (2014–2022)
TABLE 2: Issuers That Put Forward One, Two or No Female Directors
We also analyzed the representation of visible minorities, Indigenous peoples and persons with disabilities on public company boards. The percentage of these groups has increased over the past two years, albeit modestly. In 2022, visible minorities held 8%, Indigenous peoples 0.6% and persons with disabilities 0.9% (2021: 6.8%, 0.5% and 0.5% respectively, and in 2020: 5.5.%, 0.5% and 0.4%, respectively) of board seats. However, as shown in Figure 1, the representation of these groups on boards remains significantly lower than their representation in Canada's population.
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