Institutional Shareholder Services (ISS) recently published a new proposal that could see ISS recommending withhold votes against nominating committee chairs or board chairs for lack of progress with respect to representation of female directors on boards. This came against the backdrop of the Canadian Securities Administrator's third review of practices of TSX companies against the CSA's requirements to make specific disclosure about the issuer's approach to women on boards and in executive officer positions.

Details of the ISS Proposal

In its proposal published on October 26, 2017, ISS reports that under its proposed policy it will consider recommending withhold votes against the chair of the nominating committee if the company has not adopted a formal policy regarding gender diversity and has no female directors. (If there is no nominating committee, the withhold vote would be transferred to the chair of the closest equivalent or, if necessary, to the board chair)

ISS arrived at this policy proposal following roundtable discussions held with Canadian institutional investors in the summer of 2017, where such investors expressed their frustration with the slow progress on boardroom gender diversity and asked for a stronger focus on the level of rigour demonstrated in company policies (e.g. more concrete disclosure intentions, including goals and targets). While the CSA adopted a mandatory regime that requires issuers to provide very detailed disclosure regarding their approach to gender diversity, the criticism remains that many issuers have adopted boilerplate policies without any tailored or specific intentions or plans identified.

Under its proposed policy, ISS states that it will look for a robust policy that includes a clear commitment to increasing board gender diversity that should include measurable goals and targets denoting a firm commitment to increasing gender diversity within a reasonable period of time. The proposal would not apply, however, to companies with four or fewer directors or to new issuers or those recently graduated to the TSX.

According to data reviewed by ISS through mid-August of 2017, approximately 5% of companies in the S&P/TSX Composite Index would not meet the criterion of the proposed policy because they have neither a formal gender diversity policy nor any women on their boards. This increases to closer to 50% of TSX companies covered by ISS that are not included in the Composite Index.

ISS has expressly asked for feedback on the proposal, including on specific questions about the application to all TSX-listed companies and whether a one-year transition period after adoption is appropriate. Comments are being solicited until November 9, 2017.

Key Findings of the CSA Review

Meanwhile, in its third annual review the CSA reports that there has been an increase of women in corporate leadership roles since 2015. CSA Multilateral Staff Notice 58-309 Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101 Disclosure of Corporate Governance Practices, published on October 5, 2017, discloses the results of the participating jurisdictions' review of 660 TSX-listed issuers' disclosure regarding women on boards and in executive officer positions that became mandatory for reporting issuers in 2015.

The Staff Notice notes an overall improvement in female board and executive officer representation, as well as an increase in the number of issuers with policies relating to the representation of women on boards (including the adoption of targets and term limits). The CSA's key findings include the following:

  • In 2017, 26% of board vacancies that were filled by replacements were filled by women (131 of 505).
  • 61% of issuers had at least one woman on their board, up from 49% in 2015 and 55% in 2016.
  • Women occupied 14% of the total board seats in the sample, a 2 percentage-point increase over 2016 and a 3 percentage-point increase since 2015. 24% of the directors of issuers with a market capitalization of over $10 billion were women.
  • 15% of issuers added one or more women to their boards in 2017.
  • Issuers with at least one woman in executive officer positions represented 62% of the sample reviewed. This figure has remained relatively constant over the past three years (59% in 2016 and 61% in 2015).
  • 35% of issuers had adopted a policy on the identification and nomination of women directors, as compared to 21% in 2016 and 15% in 2015. This included 57% of issuers in the $2 to 10 billion market cap range and 63% of issuers with market caps over $10 billion.
  • 11% of issuers had broader diversity policies encompassing characteristics like age, ethnicity, race, religion and sexual orientation.
  • 21% of issuers adopted director term limits, of which 50% included age limits, 23% had tenure limits and 27% had both.

Industry Makes a Difference

The retail, utilities and manufacturing industries had the highest percentage of issuers with women board members (89%, 86% and 84% respectively). Like retail and manufacturing, the mining industry experienced a double-digit increase over 2016, but it still lagged many other sectors (with only 54% of issuers reporting one or more women board members). Oil and gas and technology issuers were the least likely to have women on their boards (45% and 52% of issuers, respectively).

With respect to executive officer positions, the real estate and manufacturing industries had the highest percentage of issuers with one or more women in executive roles (80% and 79%), while the mining and oil and gas industries had the lowest representation (52% and 48%). Despite being a leader in female board representation, the retail industry has seen a decrease in the percentage of issuers with one or more women in executive officer positions.

Survey Methodology

The Staff Notice represents the third year of the CSA's review of women in corporate leadership roles. For a discussion of the last two years' of results, please see our previous posts here and here. This year, the staff review looked at a sample of 660 TSX-listed issuers with year ends between December 31, 2016 and March 31, 2017 who filed information circulars or annual information forms before July 31, 2017. This sample does not include the larger Canadian banks given their October 31 year ends; however, noting that the banking industry has been an early adopter of diversity initiatives, the Staff Notice does indicate that, based on their 2017 information circulars, the six largest banks had an average female representation of 35% on their boards.

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