Effective February 1, 2022, Institutional Shareholder Services (ISS) will expect an issuer included on the S&P/TSX Composite Index to have at least 30% of its board comprised of women, or a written gender diversity policy that includes a commitment to achieve at least 30% female board representation over a reasonable timeframe.

What you need to know

  • Effective February 1, 2022, ISS will recommend a withhold vote for the chair of the nominating committee (or its equivalent) of S&P/TSX Composite Index companies where women comprise less than 30% of the board, and:
    • the company has not disclosed a formal written gender diversity policy; or
    • the company's formal written gender diversity policy does not include a commitment to achieve at least 30% women on the board over a reasonable timeframe.
  • For widely-held companies which are not also S&P/TSX Composite Index constituents1, the ISS policy remains unchanged—ISS will recommend a withhold vote where the company has not disclosed a formal written gender diversity policy, and where there are no women on the board.
  • We expect adoption of the 30% target will emerge as the market standard in Canada for best practices in board diversity.

Background to ISS diversity guidelines

The new diversity guidelines were released as part of ISS' regular annual review and update process, informed by responses to its global benchmark policy survey, including feedback from 49 respondents based in Canada.

Under current ISS guidelines, to avoid an adverse voting recommendation, a widely-held company must have either one woman on its board or a formal gender diversity policy including goals and defined targets to attain representation of women on the board. However, ISS advises that widely-held TSX-listed company boards lacking a policy commitment and having no female directors have become outliers lagging market expectations.

ISS notes that a number of large Canadian institutions and S&P/TSX Composite Index issuers have voluntarily endorsed specified targets for female board representation, either as signatories to the 30% Club Statement of Intent or the 2022 Catalyst Accord. In recognition of this growing support for the adoption of a minimum target and in response to feedback from the Canadian institutional investor community, the new ISS gender diversity guidelines were released.

The new guidelines are effective February 1, 2022, providing affected companies with a one-year transition period to adopt a diversity policy that satisfies the new requirements.

Market implications

Larger market cap issuers in Canada have led the way on gender diversity in the boardroom. A historic milestone was reached in August 2019 when every company in the S&P/TSX Composite Index had at least one woman on its board. By comparison, more than 20% of TSX-listed issuers continue to have no women on their boards2. While S&P/TSX Composite Index companies have made notable gains, many have not yet achieved 30% female representation on the board—of the 234 companies included on the Index, approximately 40% meet or exceed the 30% threshold3. As a result of the new ISS guidelines, we expect that there will be a significant push by S&P/TSX Composite Index company boards to meet the 30% threshold by 2022 or, at a minimum, adopt—and meet—a 30% target in the near term.

For all other TSX-listed companies, while the new ISS gender diversity guidelines will not apply, we expect there will be continued market pressure to take meaningful steps to increase the representation of women on the board. While targets have gained some momentum at the board level over the past several years, the vast majority of TSX-listed company boards have chosen not to adopt numerical targets. In light of the ISS guidelines, however, we expect adoption of the 30% target will emerge as the market standard in Canada for best practices in board diversity.

By contrast, numerical targets for female representation at the executive officer level remain very rare—between 2014 and 2019, the adoption of executive officer level targets was relatively flat between 2% and 4% of issuers. Absent a groundswell of support advocating for the adoption of diversity-based targets in senior management, we do not expect to see a meaningful uptick in numerical targets at the executive officer level.

Beyond gender?

While ISS Canadian proxy guidelines continue to focus on the representation of women on Canadian boards, by contrast, new ISS US proxy guidelines focus on racial and ethnic diversity. Beginning in 2021, to facilitate investor engagement on diversity, ISS benchmark research reports for companies in the Russell 3000 or S&P 1500 indexes will highlight boards that lack racial and ethnic diversity (or lack disclosure of such). In 2022, if the boards of these companies have no racially or ethnically diverse members, ISS will recommend voting against or withhold from voting for the chair of the nominating committee (or other directors on a case-by-case basis). An exception will be made if there was racial and/or ethnic diversity on the board at the preceding annual meeting and the board makes a firm commitment to appoint at least one racially or ethnically diverse member within a year. This emphasis on racial and ethnic diversity has been driven in part by the recent social unrest in the United States and in response to feedback from the U.S. institutional investor community.

In Canada, the conversation around corporate diversity is also evolving beyond gender. Federally incorporated public companies are now required to make certain annual disclosures regarding the representation of women, visible minorities, Indigenous peoples and people with disabilities on the board and in senior management. Earlier this year, Ontario's Capital Markets Modernization Taskforce proposed the mandatory adoption of targets and related disclosure regarding the representation of women, black people, Indigenous people, and people of colour on boards and in executive officer positions for TSX-listed issuers. In recent months, over 300 CEOs of Canadian companies have signed the BlackNorth Initiative pledge to end anti-black systemic racism, including a commitment to the goal of achieving a minimum 3.5% of executive and board roles based in Canada being held by Black leaders by 2025.

Against this changing backdrop in Canada, companies prioritizing diversity will be well-served to adopt recruitment, mentoring and advancement initiatives, as well as governance policies and practices, focused on a broad recognition of groups that are historically underrepresented in senior management and around the boardroom table.


1 "Widely-held" companies are those that ISS designates as such based on the number of ISS clients holding securities of the company.

2 All numerical data cited in this article compiled from "Women in Leadership at S&P/TSX Companies" jointly published by Catalyst and the 30% Club Canada on March 5, 2020, and the Canadian Securities Administrators' "Report on Fifth Staff Review of Disclosure Regarding Women on Boards and in Executive Officer Positions".

3 As at December 31, 2019.

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.