As of January 1, 2020, distributing corporations governed by the Canada Business Corporations Act (CBCA) will be required to provide additional information to shareholders regarding diversity among their boards of directors and within senior management of the corporation. The additional diversity disclosure will be required in conjunction with the corporation's notice of meeting and/or management proxy circular for its annual meeting of shareholders to be held in 2020. Distributing corporations, typically public companies, will be required to disclose diversity policies as well as numbers and percentages of members of "designated groups" (as further described below), namely, women, Aboriginal persons, members of visible minorities and persons with disabilities which are identified among their directors and senior management.
The new CBCA disclosure requirements, set out in the amended section 172.1 of the CBCA and corresponding CBCA regulations (the "Regulations"), are aimed at broadening existing disclosure requirements for distributing corporations. While disclosure requirements under Canadian securities law, National Instrument 58-101 Disclosure of Corporate Governance Practices, have been limited to gender and have only applied to certain distributing corporations, such as those listed on the Toronto Stock Exchange (TSX), the new CBCA disclosure requirements will go beyond gender and will apply to all distributing corporations, including "venture issuers," typically listed on the TSX Venture Exchange (TSXV) and the Canadian Securities Exchange (CSE).
Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act, received Royal Assent on May 1, 2018. This bill introduced a number of amendments to the CBCA with respect to distributing corporations and cooperatives, including measures to implement diversity disclosure requirements and supporting regulations at a later date. On June 22, 2019, an order in council fixed January 1, 2020 as the date the new disclosure rules will come into force. Regulations were also published on June 22 that provide more detailed information on the diversity disclosure requirements.
The Regulatory Impact Analysis Statement (RIAS) which accompanies, but does not form part of, the Regulations, identified that diversity on boards of directors and within senior management continues to be an issue in Canada as well as other countries. The RIAS noted that gender has been a primary focus but that the issue of diversity is broader and under-representation of women, Aboriginal peoples, peoples with disabilities and members of visible minorities impacts matters of board quality, fairness and performance.
Under the CBCA amendments, distributing corporations will be required to provide diversity information to shareholders about members of the board of directors and senior management, including the number and percentage of members of "designated groups," as defined under section 3 of the Employment Equity Act (Canada), namely:
- Aboriginal peoples
- Persons with disabilities: persons
who have a long-term or recurring physical, mental, sensory,
psychiatric or learning impairment and who
- consider themselves to be disadvantaged in employment by reason of that impairment, or
- believe that an employer or a potential employer is likely to consider them to be disadvantaged in employment by reason of that impairment,
and includes persons whose functional limitations owing to their impairment have been accommodated in their current job or workplace;
- Members of visible minorities: persons, other than Aboriginal peoples, who are non-Caucasian in race or non-white in colour.
Notwithstanding the definition of designated groups, corporations are free to include information about the representation of members of other groups who hold positions on the board of directors or in senior management.
Diversity Disclosure Requirements
The diversity information requirements will be based on a "comply or explain" model which is similar to existing disclosure requirements in place under Canadian securities laws rather than imposing quotas or specific requirements. According to this model, as of January 1, 2020, companies will either "comply" by disclosing their diversity policies and objectives or "explain" why they have not implemented such a policy.
The diversity information that will need to be addressed under the disclosure requirements includes:
- whether or not the corporation has adopted term limits for the directors on its board or other mechanisms of board renewal and a description of those term limits or mechanisms;
- whether or not the corporation has adopted a written policy relating to the identification and nomination of members of "designated groups" for directors and the reasons for not adopting such a policy;
- if the corporation has adopted a
written policy referred to above:
- a short summary of the policy's objectives and key provisions;
- a description of the measures taken to ensure effective implementation;
- a description of the annual and cumulative progress in achieving the objectives of the policy; and
- whether or not the board of directors or its nominating committee measures the effectiveness of the policy and how it is measured.
- the consideration of the level of the representation of designated groups in identifying and nominating candidates for election or re-election to the board of directors and when appointing members of senior management and how that level is considered;
- the number and proportion (in percentage form) of members of each designated group on the board of directors and in senior management; and
- target numbers or percentages for members of each of the designated groups to hold positions on the board of directors or to be members of senior management by a specific date, the target and the annual and cumulative progress of the corporation in achieving that target.
The information regarding diversity must be provided separately and not just on an aggregated basis for the designated groups.
For purposes of the CBCA diversity disclosure requirements, "senior management" has the same meaning as "executive officers" as defined in National Instrument 51-102 Continuous Disclosure Obligations.
To ensure compliance with the new diversity disclosure regime, distributing corporations should educate themselves on the information requirements and the definitions of members of the designated groups as defined in the Employment Equity Act (Canada).
The 2020 proxy season for distributing corporations will arrive quickly and therefore corporations do not have much time to prepare to meet these new disclosure requirements. The burden on venture issuers is potentially more significant given that they were previously exempt from these types of disclosures.
There is no requirement to identify the individuals who are members of the designated groups as part of the disclosure but whether individuals, on the board or within senior management, will be comfortable self-identifying on a corporation's voluntary questionnaire remains to be seen. Corporations should consider starting to collect relevant information within their organizations to ensure the disclosure process is timely and accurate.
Corporations are also permitted to include other groups at their own discretion so it will be interesting to see whether corporations determine to add additional disclosure beyond what is required under the new disclosure requirements.
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