Effective January 1, 2020, Distributing Corporations (which include venture issuers) governed by the Canada Business Corporations Act (CBCA) will be subject to new disclosure requirements relating to the diversity of their board of directors and senior management (the New Disclosure Requirements). 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 with the goal of improving corporate transparency and encouraging corporations to consider a broader range of candidates and skill sets among their senior leaders. The New Disclosure Requirements will be implemented pursuant to amendments to the CBCA and the Canada Business Corporations Regulations, 2001 (the Regulations).
New disclosure requirements
Expanding on the current "comply or explain" disclosure requirements for public companies under Canadian securities laws, Distributing Corporations will be required to disclose information in their annual shareholder meeting materials regarding the representation of the four designated groups under the Employment Equity Act (Canada) on their board of directors and senior management team, namely:
- Aboriginal peoples;
- persons with disabilities; and
- members of visible minorities, (collectively, the Designated Groups).
Distributing Corporations will be required to provide the same type of information that public issuers must disclose under Canadian securities laws regarding their gender diversity representation, including:
Term limits: whether the Distributing Corporation has adopted term limits or any mechanisms of board renewal, and if so, a description of those limits or mechanisms or reasons why it has not adopted any;
Written policy: whether the Distributing Corporation has adopted a written policy relating to the identification and nomination of members of the Designated Groups, and (i) if so, a short summary of that policy's objectives and key provision, the measures taken to effectively implement that policy, a description of the annual and cumulative progress in achieving the objectives of the policy and whether or not the board of directors measures the effectiveness of the policy and how it is measured, or (ii) if not, the reasons for not adopting a written policy;
Considerations: whether or not the board of directors considers the level of representation of the Designated Groups when identifying and nominating candidates for election or re-election to the board of directors, and appointing members of senior management, as well as, as the case may be, how that level is considered or reasons why it is not considered;
Target: whether or not the Distributing Corporation has adopted a target percentage or number, or range of target percentages or numbers, of members of each of the Designated Groups to hold positions on the board of directors and positions within senior management by a specific date, and (i) if so, what the target is and the annual and cumulative progress in achieving that target, or (ii) if not, the reasons why no targets have been adopted; and
Current representation: the number and proportion, expressed as a percentage, of members of each Designated Group who hold positions on the board of directors and in senior management, including, in the case of senior management, all of its "major subsidiaries".
The New Disclosure Requirements do not require Distributing Corporations to amend their policies or even have policies at all. Rather, the New Disclosure Requirements merely require the disclosure of those policies or an explanation as to why the Distributing Corporation does not have one.
Distributing Corporations will also be required to provide a copy of the information provided to the shareholders under the New Disclosure Requirements to the Director appointed under the CBCA for public access purposes. The simplest way to satisfy this requirement is by submitting the Distributing Corporation's proxy circular to Corporation's Canada through their Online Filing Centre. There is no cost associated with this filing.
In satisfying the New Disclosure Requirements, Distributing Corporations must rely on self-identification by members of the Designated Groups. Though it is uncertain whether all members of a Distributing Corporation's board of directors or senior management group will feel comfortable self-identifying on a D&O questionnaire, assurance can be provided in that the New Disclosure Requirements do not require the Distributing Corporation to disclose specific personal information (e.g., which individuals are members of a Designated Group). Instead, the New Disclosure Requirements only require the Distributing Corporation to disclose the Distributing Corporation's overall statistics. In order to ensure timely disclosure, Distributing Corporations should begin to collect relevant diversity information prior to the 2020 proxy season.
The Regulations define "members of senior management" in respect of a Distributing Corporation to include the following:
- the chair and vice-chair of the board of directors;
- the president of the corporation;
- the chief executive officer and chief financial officer;
- the vice-president in charge of a principal business unit, division or function, including sales, finance or production; and
- an individual who performs a policy-making function in respect of the corporation.
This definition is in alignment with the definition of "executive officer" found in Canadian securities laws.
The Regulations define "major subsidiary" in respect of a Distributing Corporation to be, a subsidiary that:
- has assets, as included in the Distributing Corporation's most recent annual audited or interim balance sheet or most recent statement of financial position, that are 30 percent or more of the consolidated assets of the Distributing Corporation reported on that balance sheet or statement of financial position, as the case may be; or
- has revenue, as included in the Distributing Corporation's most recent annual audited or interim income statement or most recent statement of comprehensive income, that is 30 percent or more of the consolidated revenue of the Distributing Corporation reported on that statement.
Currently, venture issuers are exempt under Canadian securities laws from disclosing their gender diversity representation. However, beginning in 2020, all Distributing Corporations (which includes venture issuers) existing under the CBCA will be required to disclose gender and non-gender diversity representation on their board of directors and within their senior management team pursuant to the New Disclosure Requirements as outlined herein. As the CBCA is the governing legislation for a large number of publicly traded Canadian companies, it is estimated that the New Disclosure Requirements will affect over 600 Canadian corporations.
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.