Canada: New CBCA Diversity Disclosure Requirements Confirmed

The regulations supporting the amendments to the Canada Business Corporations Act (CBCA) related to diversity disclosure have been published. The amendments will require publicly-listed CBCA corporations to provide certain information on board and executive officer diversity policies and statistics beginning in 2020.

Although the CBCA was amended on May 1, 2018 to require publicly-listed CBCA corporations to include diversity disclosure in their annual shareholder meeting notice or proxy circular, the amendments were not brought into force until the regulations supporting the changes could be finalized. These regulations have now been published and come into force on January 1, 2020. Accordingly, the following requirements apply for the 2020 shareholder meetings of publicly-listed CBCA corporations. Of particular note, the amendments expand the existing Canadian securities law requirements on diversity disclosure to broaden the meaning of diversity beyond gender and to apply to all CBCA reporting issuers, including issuers listed on the Toronto Stock Exchange (TSX), TSX Venture Exchange (TSXV) and Canadian Securities Exchange (CSE).

Diversity disclosure requirements

  • Diversity in the boardroom and in senior management.  Public corporations will be required to annually disclose their term limits, diversity policies and targets, if any, as well as statistics regarding representation by "designated groups" on both the corporation's board of directors (Board) and at the executive officer level. The disclosure requirements will apply in respect of the Board, the chair and any vice-chair of the Board, the president of the corporation, the chief executive officer and chief financial officer, each vice-president in charge of a principal business unit, division or function (including sales, finance and production) and any other individual who performs a policy-making function.
  • Not just women.  The new disclosure requirements relate not just to policies, targets and statistics pertaining to women, but also to other members of "designated groups". The term "designated groups" takes its meaning from the federal Employment Equity Act, and includes women, Aboriginal peoples, persons with disabilities and members of visible minorities. Canadian securities regulations currently require disclosure regarding gender diversity and are applicable to TSX-listed issuers only. The amendments expand these requirements to apply to other forms of diversity and will apply to all reporting issuers. 
  • Comply or explain.  The amendments were the source of much debate in Parliament. In the end, the federal government did not impose quotas or any specific diversity requirements on CBCA corporations, but instead introduced a "comply or explain" regime which mirrors Canadian securities law. Corporations are under no obligation to increase the diversity of their Board or C-suite, but must disclose the number and proportion of directors and executive officers who are members of designated groups. They are under no obligation to adopt any specific policies or quotas related to diversity, but they must disclose whether or not they have done so and, if not, why.
  • Five-year review.  The federal government will review these new provisions related to diversity disclosure in 2025. If the amendments do not result in increased diversity in the boardroom and the C-suite, the government will consider further amendments.

For a copy of these amendments please click here and here.

Other CBCA amendments not yet in force

Other amendments to the CBCA related to annual shareholder meetings of publicly-listed CBCA corporations have been passed but are not yet in force. We understand that they will come into force after the 2020 proxy season.

  • Say-on-pay vote.  Corporations will be required to develop an approach with respect to the remuneration of directors and executive officers that shareholders will vote on annually. Results of the vote must be disclosed, however those results will not be binding on the corporation as is currently the case for corporations that have voluntarily adopted say-on-pay voting.
  • Clawback policy disclosure.  Corporations will be required to provide information in their annual proxy circular regarding the recovery of incentive benefits or other remuneration benefits paid to directors and executive officers of the corporation. 
  • Disclosure related to well-being.  Corporations will be required to disclose in their annual proxy circular certain information regarding the well-being of employees, retirees and pensioners. 
  • Annual elections with a separate vote for each candidate.  Directors will need to be elected on an individual and annual basis. Currently, the CBCA allows directors to be elected as part of a slate and for up to a three-year term. The TSX already requires annual elections and individual rather than slate voting. The amendments will result in a change for some TSXV and CSE-listed issuers, as those stock exchanges currently permit staggered elections and slate voting as long as shareholders agree to such provisions.
  • Majority voting for directors in uncontested elections.  Where there is only one candidate nominated for each position available on the Board, shareholders will be able to vote "for" or "against" each nominee director (instead of "for" or "withhold" under the current system), and each nominee director must receive a majority of "for" votes to be elected. Further, if a nominee director does not receive a majority of "for" votes, he or she may not be appointed a director by the Board before the next annual meeting of shareholders, except if necessary to ensure that the Board has the requisite number of resident Canadians or independent directors. Under TSX requirements, a director must offer to resign if he or she does not receive a majority of "for" votes, but the Board has the option of not accepting such resignation in "exceptional circumstances". The amendments remove this discretion. The amendments will also result in changes for many TSXV and CSE-listed issuers since they are not currently required to follow a majority voting standard.
  • Grace period for directors who are not re-elected.  If an incumbent director fails to obtain a majority of "for" votes at the shareholder meeting, that director may be able to continue as a director for up to 90 days following the meeting. This grace period was added by the Senate following public criticism and much debate.  
  • "Notice-and-Access".  Notice-and-access allows certain shareholder meeting materials to be made accessible online rather than physically mailed to shareholders. Although securities legislation was amended in 2013 to introduce notice-and-access, the CBCA was not entirely compatible with those amendments. As a result, CBCA corporations needed to seek an exemption to be able to use the notice-and-access system. The amendments will allow full use of notice-and-access by CBCA corporations.  
  • Delivery of financial statements.  Corporations will be able to meet the requirement to send financial statements to registered shareholders if they use notice-and-access and include a link to the financial statements as part of the notice-and-access package. If a public corporation does not use notice-and-access (or at least not in respect of its financial statements), it will only be required to send financial statements to those registered shareholders who specifically request them. Prior to the amendments taking effect, public corporations are required to mail annual financial statements to all registered shareholders, except those who state they do not wish to receive them.
  • Shareholder proposals.  The amendments and draft regulations change the time frame for a shareholder to submit proposals to a CBCA corporation to between 90 to 150 days before the anniversary of the last annual shareholder meeting (instead of a deadline of 90 days prior to the anniversary date of the notice of the last AGM). The deadline for shareholders to submit proposals will be clearer and allow shareholders to submit proposals closer to the date of the AGM.

About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

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For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

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