Canada: Women On Boards: OSC Proposes "Comply Or Explain" Model Over Quotas

On January 16, 2014, the Ontario Securities Commission (the "OSC") published for comment proposed amendments to Form 58-101F1 Corporate Governance Disclosure (the "Proposed Amendments") under National Instrument 58-101 Disclosure of Corporate Governance Practices.The amended "comply or explain" disclosure rule would require issuers listed on the Toronto Stock Exchange (the "TSX") and other non-venture issuers to annually disclose any director term limits and the representation of women on boards and in executive officer positions, including the number and proportion of women in those roles. Davies recently flagged gender diversity as an important issue to watch this year in Davies Governance Insights 2013, the firm's annual review of key issues and trends shaping the Canadian corporate governance landscape. We expect the Proposed Amendments will be adopted in some form.

Background on Gender Diversity

Gender diversity among Canadian issuers received heightened attention in 2013.While the incidence of women holding leadership positions has been on the rise over the past two years, the rate of increase has been slow and significant gender disparity persists.

For example, out of the total 3,275 board seats of issuers on the S&P/TSX Composite Index and the S&P/TSX SmallCap Index, only 343 (or 10.5%) were held by women in 2013.The percentage of board positions held by women for issuers on the S&P/TSX 60 Index was approximately 18.4% in 2013. The OSC notes that based on 448 responses to its November 2013 survey of about 1,000 TSX-listed issuers regarding gender diversity, 57% of respondents indicated they have no female directors, only 3% had a female chair of the board or female lead director and 53% indicated that women held less than 10% of executive positions.

The Proposed Amendments come in response to calls from the Ontario Government in June 2013 for the OSC to undertake a public consultation process regarding disclosure of gender diversity. In July 2013, the OSC published OSC Staff Consultation Paper 58-401 Disclosure Requirements Regarding Women on Boards and in Senior Management (the "Consultation Paper").The Consultation Paper requested feedback on the OSC's proposed "comply or explain" model, including effective policies and practices for increasing the number of women on boards and the appropriate disclosure requirements. The OSC subsequently held a public roundtable to discuss the disclosure model set out in the Consultation Paper.

For more information on the key issues and developments in gender diversity and corporate governance more generally, please refer to the Governance Insights 2013 report, also available at

Key Aspects of the Proposed Amendments

The Proposed Amendments are intended to encourage more effective boards and better corporate decision-making by requiring greater transparency for investors and other stakeholders regarding the representation of women on boards and in senior management. The transparency is intended to assist investors when making investment and voting decisions.

If adopted, the Proposed Amendments will require TSX-listed and other non-venture issuers reporting in Ontario to include the following disclosure annually in their proxy circulars:

  • Disclosure of director term limits or an explanation for their absence (mandatory term limits are not proposed).
  • Disclosure of the number and proportion of women on the board and in executive positions.
  • Disclosure of an issuer's "policies" on the representation of women on the board (including for identifying and nominating female directors), or an explanation for their absence.
  • If such a policy has been adopted, disclosure of its objectives and key provisions, the measures taken to ensure its implementation, the progress made on achieving objectives, and whether (and how) the effectiveness of the policy is measured.
  • Disclosure of the board's (or its committee's) consideration of the representation of women in the director identification and selection process, or an explanation of the absence of such consideration, including whether it considers the level of female representation on boards in identifying and nominating candidates and, if not, why not.
  • Disclosure of the consideration given to the representation of women in executive positions when making appointments, or an explanation of the absence of such consideration.
  • Disclosure of any targets voluntarily adopted by the issuer regarding female representation on the board or in executive positions and, if none, an explanation for their absence.

For many, the OSC's approach is preferable to mandatory quotas or targets (adopted by some foreign jurisdictions), who are concerned that strict rules or prescriptions can result in a "one size fits all" approach that fails to account for the circumstances of each issuer and its board.

Next Steps and Considerations for Boards

Given the heightened focus on gender diversity and the fact that Canada appears to be lagging behind other jurisdictions in adopting requirements to promote gender diversity, we expect the Proposed Amendments will ultimately be adopted, in some form. As such, boards of Canadian issuers should carefully consider and evaluate what, if any, steps and policies they have adopted, or might adopt, in order to foster diversity on their boards and to maximize the effectiveness of their boards and decision-making. Issuers should also start positioning themselves to provide the annual disclosure contemplated by the Proposed Amendments.

Comments on the Proposed Amendments are due by April 16, 2014.Click on OSC Proposed Amendments to Form 58-101F1 or visit the OSC's website at for a copy of the full text of the Proposed Amendments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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