On July 30, 2013, the Ontario Securities Commission (OSC) published a consultation paper (the Consultation Paper) on advancing the representation of women on boards and in senior management of public companies. The Consultation Paper was published in response to a ministerial request that the OSC undertake a public consultation process regarding the adoption of a "comply or explain" disclosure regime for reporting issuers listed on the Toronto Stock Exchange (TSX) relating to board and senior management gender diversity policies and practices.
STATUS OF WOMEN ON CANADIAN BOARDS AND IN SENIOR
The Consultation Paper surveys several recent studies, including studies by Catalyst, GMI Ratings and TD Economics, on the representation of women on Canadian boards and in senior management and notes the following:
- Public companies have the lowest representation of women on their boards as compared to private companies, Crown corporations and co-operatives
- In 2011, only 10.9% of directors of companies on the S&P/TSX Composite index were women
- 43% of companies on the S&P/TSX Composite index did not have a woman on their board and 28% had only one woman on their board
- In 2012, 35.9% of public companies did not have any women acting as senior officers.
CURRENT APPROACH IN CANADA
Pursuant to National Instrument 58-101 – Disclosure of Corporate Governance Practices (NI 58-101), reporting issuers in Canada are currently required to describe the process by which the board identifies new candidates for board nominations including whether the board considers diversity of experience, background and views when considering a candidate for appointment or election to the board. However, to date, Canadian securities regulators have not published any policies or requirements that explicitly address gender diversity.
The Canadian government has recently adopted an initiative to address gender diversity on Canadian boards. On April 5, 2013, Rona Ambrose, the then Minister of Status of Women and Minister of Public Works and Government Services Canada, introduced an advisory council comprised of leaders from the private and public sectors to advance the participation of women on corporate boards. The advisory council is expected to make recommendations by the end of 2013.
Similarly, the Ontario government's 2013 budget called for the government to work with other parties, including the OSC, to consider "the best way for firms to disclose their approaches to gender diversity, with a view to increasing the participation of women on boards and in senior management."
APPROACHES IN OTHER JURISDICTIONS
The Consultation Paper summarizes the approaches to promote gender diversity on boards and in senior management adopted in several other jurisdictions, including:
Since February 2010, SEC registrants have been required to disclose whether, and if so how, the nomination committee or the board considers diversity in identifying nominees for director positions. Although diversity is not defined, Luis A. Aguilar, the SEC Commissioner, recently delivered a speech noting that gender diversity should be a priority for U.S. public companies and their boards.
In 2010, the Australian Stock Exchange (ASX) made amendments to the ASX Corporate Governance Council Principles and Recommendations for listed companies. These amendments included a recommendation that listed companies establish a diversity policy that contains measurable objectives for achieving gender diversity, including with respect to board membership. Under the ASX listing rules, a listed company's annual report is required to contain a statement disclosing the extent to which they have complied with these principles and recommendations, thereby following the "comply or explain" model that is being proposed by the OSC.
In 2011, the U.K. government commissioned Lord Davies to investigate and make recommendations on how to improve participation by women on boards. Lord Davies recommended various policy initiatives, including increasing reporting requirements and most notably creating a voluntary target for FTSE 100 companies of 25% female board representation by 2015. In response to the report, the UK Corporate Governance Code was amended to encourage companies to take diversity into consideration when making board appointments and evaluating board effectiveness and to disclose annually board policies on diversity, any measurable objectives for implementing the policies and the progress made on achieving such objectives. While the UK Corporate Governance Code acts as guidance rather than rigid rules, the U.K. listing rules require that companies include "comply or explain" style disclosure in their annual report regarding their compliance with the code.
While several European countries have adopted a "comply or explain" disclosure approach to gender diversity, including Denmark, Finland and Sweden, other countries such as Belgium, France, Italy and Norway have mandated quotas to encourage gender diversity with repercussions for non-compliance, including fines, nullification of board elections and loss of board fees and benefits for directors.
PROPOSED MODEL OF DISCLOSURE
The OSC is considering amending NI 58-101 to require disclosure, on an annual basis, in the following four areas:
Policies regarding the representation of women on the board and
in senior management
In the Consultation Paper, the OSC proposes the adoption of a "comply or explain" disclosure model. Under such an approach, an issuer would be required to disclose whether it had a policy for advancing the participation of women in senior management roles and/or for the identification and nomination of female directors.
If an issuer has adopted such a policy, the issuer would be required to: (a) provide a summary of its key provisions or disclose the policy; (b) set out how the policy is intended to advance the participation of women on the board and in senior management of the issuer; (c) explain how the policy has been implemented; (d) describe any measurable objectives that have been established under the policy; (e) disclose annual and cumulative progress by the issuer on achieving the objectives of the policy and where the objectives are measurable, disclose progress in quantitative terms; and (f) describe how the board or its nominating committee measures the effectiveness of the policy.
If an issuer does not have such a policy, the issuer would be required to explain why not and to identify any risks or opportunity costs associated with the decision not to have such a policy.
Consideration of the representation of women in the director
Further to the existing disclosure requirements to describe the process by which the board identifies new candidates for board nominations, issuers would be required to explicitly indicate whether, and if so how, the board or its nomination committee consider the level of representation of women on the board in identifying and nominating candidates for election or re-election to the board. If the issuer does not consider the representation of women in this process, then the issuer will be required to explain why not and to identify any risks or opportunity costs associated with the failure to do so.
Consideration of the representation of women in the board
An issuer that has adopted a policy regarding the representation of women on the board and/or in senior management would be required to disclose whether, and how, adherence to the policy, or achieving any objectives set out in the policy, are assessed in connection with the existing annual evaluation of the effectiveness of the board and the nominating committee.
Measurement regarding the representation of women in the
Issuers would be required to disclose the proportion, in percentage terms, of (1) female employees in the whole organization; (2) women in senior executive positions; and (3) women on the board. Issuers would also be permitted to disclose any other information or explanation that is relevant in order to properly understand such quantitative information.
Though the term "senior executive position" is not currently defined, the OSC proposes that, for the purposes of the measurement, an issuer should use the existing definition of "executive officer" provided in NI 58-101. For the purposes of NI 58-101, "executive officer" means an individual who is (1) a chair, vice-chair or president; (2) a vice-president in charge of a principal business unit, division or function including sales, finance or production; or (3) an individual performing a policy-making function in respect of the issuer.
APPLICATION OF PROPOSED MODEL OF DISCLOSURE
It is currently contemplated that reporting issuers, other than venture issuers and investment funds, would be required to provide disclosure regarding the representation of women on boards and in senior management. We expect that this information would be included with the annual summary of such issuer's corporate governance practices typically contained in its management information circular.
The application of the proposed disclosure requirements to SEC issuers and designated foreign issuers is not discussed in the Consultation Paper, but we would expect the application of such requirements to be covered in the draft policy when published for comment. We would anticipate that, consistent with the current approach to other continuous disclose obligations, the proposed disclosure requirements would not apply to SEC issuers and designated foreign issuers so long as such issuers complied with the requirements of National Instrument 71-102 – Continuous Disclosure and Other Exemptions Relating to Foreign Issuers.
The OSC is soliciting comments on the proposed disclosure requirements. The comment period ends September 27, 2013.
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