Illustration by Carlo Giambarresi
Canadian companies have steadily, but slowly, added women to their boards and executive ranks over the past decade as they respond to pressure from shareholders. The shift has been due in large part to regulations that forced them to disclose their gender diversity and explain how they intend to improve it.
Next spring, the conversation will be bigger and broader. New federal rules will extend the diversity disclosure rules to race, disabilities and Indigenous heritage, requiring companies to include that information in circulars to shareholders. Canada is believed to be the first country to mandate companies to expand diversity disclosure beyond gender to other groups.
Advocates are hopeful that this is another step on the path to corporate leadership that does a better job of resembling Canada’s population. The Globe and Mail talked to leaders in corporate governance on the issue of diversity as part of its annual Board Games survey, which measures Canadian companies in the S&P/TSX Composite on their board composition and governance processes.
Still, the Canadian government can only force federally incorporated companies, not provincial ones, to adhere to the new regime. And the new law stops short of mandating that companies adopt targets for its board or executives for any group, including women. Instead, Canada uses a model of disclosure called “comply or explain" – if a company does not have a policy to identify and add directors who are part of these groups, it needs to explain why.
“There’s many ways to get this work done – we do believe targets are effective because in all things business, what gets measured gets done," says Tanya van Biesen, the Canadian executive director of Catalyst, a group that promotes the progress of women in the workplace. “Yet comply-or-explain, without a doubt, has helped move this conversation forward.”
governance trends
2019
2014
Pctg. with no women
on their boards
1%
32%
Pctg. with at least one
quarter women on the board
60
19
Pctg. of female directors
on S&P/TSX boards
27
15
Avg. Board Games score
77
70
Pctg. scoring below 50
4.5
11
Pctg. scoring 80 or higher
50
28
Pctg. with a majority
of related* directors
2.2
3
Pctg. that do not split
roles of chair and CEO
14
16
Pctg. with dual-class shares
or unequal voting rights
15
13
Pctg. with ‘say on pay’ votes
75
46
*Related as defined by Board Games criteria,
available online at tgam.ca/boardgames2019
JOHN SOPINSKI/THE GLOBE AND MAIL
governance trends
2019
2014
Pctg. with no women
on their boards
1%
32%
Pctg. with at least one
quarter women on the board
60
19
Pctg. of female directors
on S&P/TSX boards
27
15
Avg. Board Games score
77
70
Pctg. scoring below 50
4.5
11
Pctg. scoring 80 or higher
50
28
Pctg. with a majority
of related* directors
2.2
3
Pctg. that do not split
roles of chair and CEO
14
16
Pctg. with dual-class shares
or unequal voting rights
15
13
Pctg. with ‘say on pay’ votes
75
46
*Related as defined by Board Games criteria,
available online at tgam.ca/boardgames2019
JOHN SOPINSKI/THE GLOBE AND MAIL
governance trends
2019
2014
1
Percentage with no women on their boards
32
60
Pctg. with at least one quarter women on the board
19
27
Percentage of female directors on S&P/TSX boards
15
77
Average Board Games score
70
4.5
Percentage scoring below 50
11
50
Percentage scoring 80 or higher
28
2.2
Percentage with a majority of related* directors
3
14
Percentage that do not split roles of chair and CEO
16
15
Pctg. with dual-class shares or unequal voting rights
13
75
Percentage with ‘say on pay’ votes
46
*Related as defined by Board Games criteria, available online at tgam.ca/boardgames2019
JOHN SOPINSKI/THE GLOBE AND MAIL
The Canada Business Corporations Act (CBCA) changes do several new things: One, they extend the rules to Indigenous persons, persons with disabilities and members of visible minority groups. Two, they make clear which types of executive positions companies must report data for. And three, they will apply to any company with a federal incorporation, even if they list on the smaller TSX Venture Exchange. Some of those companies hadn’t even been subject to a gender-disclosure rules; now, they’ll have to ramp up their disclosure to include the additional groups as well. Law firm Osler Hoskins & Harcourt LLP estimates there are about 250 CBCA companies listed on the venture exchange which will now be subject to the new disclosure obligation.
In many ways, the comply-or-explain method is similar to the approach many, but not all, Canadian companies take. Most provinces, as well as the Toronto Stock Exchange, require publicly traded companies to quantify the women on their board and in executive management and explain their approach to gender diversity in their annual proxy statement to shareholders. If there’s no formal target for the number or proportion of women on the board, the company must explain why.
The gender rules, rolled out in 2015, have coincided with a steady increase in women on boards, even without requiring companies to adopt formal targets for representation. An annual study conducted by the Canadian Securities Administrators showed the total number of board seats occupied by women in a sample of more than 600 companies increased to 17 per cent in 2019, compared to 11 per cent in 2015, and found 73 per cent of companies had at least one woman on their board, an increase from 49 per cent in 2015.
Studies that examine larger companies, which exclude the tiny energy and mining companies that have historically lagged in the number of women on boards, have shown better progress. As of September, none of the roughly 230 companies in the S&P/TSX Composite Index have all-male boards, according to governance consultant Kingsdale Advisors. (Two companies had all-male boards in their circulars this spring, but later added female directors. One, Barrick Gold, had its sole female director die shortly before it prepared its proxy.)
Osler says women now hold 30.2 per cent of board seats in the S&P/TSX 60 Index of the largest companies in Canada, which was a key goal of the 30% Club of Canada, a group that aims to increase the proportion of women in board seats and top executive roles by 2022.
Raymond Chan, a director at Telus Corp. and the former CEO of Baytex Energy Corp., hopes we are at the beginning of a similar arc in the number of visible minorities, but says the conversation about these broader elements of diversity has barely begun.
Mr. Chan personally reviewed the proxy circulars of all the TSX/S&P 60 companies and believes that there are just two dozen visible minorities, or about 4 per cent of all directors. He counted just three directors of Chinese origin when he did his study, including himself, at a time when every major company needs to be considering how to do business with China.
“It seems like there must be a lot of qualified visible minority business people around this country – these are just shocking statistics to me,” he said, saying he is speaking in a personal capacity, not for Telus. “The Canadian corporate boardrooms appear to be still very much a closed shop. It is not consistent with the multicultural and diversified communities most Canadians experienced and treasured in their everyday lives.”
Similarly, there is virtually no representation on corporate boards by people with disabilities.
The Shareholder Association for Research & Education, known as SHARE Canada, has for years helped institutional investors place proposals calling for greater board diversity. Executive Director Kevin Thomas calls the 2015 comply-or-explain gender rules a “milestone” and hopes to see similar progress from the new federal rules.
“It really helped to fan the fire and give us a bit more of an impetus to move this because the data was finally being collected in a consistent way," he said. “One of the things we’ve been able to do is to highlight the companies where they really are laggards on this, compared to their peers in the Canadian market, and file shareholder proposals that have a way of moving that market along.”
For example, Mr. Thomas said, “when we looked a bit closer, we found that the boards that had an explicit recognition of Indigenous heritage as a criterion in their board diversity policies were also the only ones that actually had Indigenous directors on the boards. So we went to a few more companies and asked them to adjust their diversity policies and add that as a criterion. And we found that in some cases those are the ones that then subsequently added Indigenous people to their boards."
Catherine McCall, executive director of the Canadian Coalition for Good Governance, a group representing institutional investors, says her group “doesn’t just think [diversity] stops at gender. And when we meet with directors in our engagement process, they will often point out that gender isn’t the be all and end all of diversity.”
Canadian institutional investors, many of them members of the 30% Club, have also been ratcheting up their gender diversity voting policies. For example, Canada Pension Plan Investment Board increased its requirement in 2019 for Canadian companies to have at least two female directors. British Columbia Investment Management Corp. (BCI) now expects a minimum of either three female directors, or 25 per cent of the board, to be represented by women.
When the pension funds feel the companies have violated their guidelines, they withhold votes for the director who chairs the nominating committee – the board committee responsible for director recruitment and nominations. Sometimes they vote against all the committee members for repeat offenders. BCI voted against 200 directors globally for gender diversity issues in 2019, while CPPIB voted against 626.
The pension plans typically say, however, that they won’t be making changes in their policies in 2020 to match the new broader federal rules. Instead, they’ll be looking at the 2020 disclosures, consulting with governance leaders and seeing what needs to be done if companies fall short. Healthcare of Ontario Pension Plan spokeswoman Judy Mann says, “We look forward to seeing how companies address the increased requirements on diversity disclosure, and will review our policies as we see how companies explain their approaches to diversity beyond gender."
In the meantime, companies must prepare for the new disclosure regime. Rima Ramchandani of law firm Torys LLP says “some of our clients, like the financial institutions who are early adopters of best practices from a corporate governance perspective are ahead of these rules.”
But others new to the rules may struggle, says Jennifer Longhurst of law firm Davies Ward Phillips & Vineberg LLP.
“It could be quite difficult if people aren’t willing to self identify and share that information for privacy reasons,” she says. "... I think many companies are going to find themselves challenged to really provide the information that investors are probably looking for.”
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David Milstead