This publication has been updated as of June 24, 2021.

Recent incidents in Canada and the U.S. have impinged that the impact of systemic racism and sexism must be explored in both public and private entities. It’s a forgone conclusion that diversity in thought and in leadership makes good business sense; therefore, corporations are set to gain by increasing diversity and by providing all Canadians opportunities to a seat at the table. And the rapid adoption of ESG (Environment, Social, and Governance) principles is driving more corporations (and their stakeholders) to assess and address the diversity in their leadership and throughout their organization. Yet it’s clear that current representation on boards and senior management still doesn’t reflect the diversity of Canada’s available workforce.

Federal Government Action. The Canadian government has taken a number of steps intended to indicate its commitment to the goals of ending systemic racism and achieving greater diversity:

• The first appointment of a Minister of Diversity and Inclusion and Youth in 2019 and the 2020 Speech from the Throne highlight the Government of Canada’s focus on tackling systemic racism in public entities and systems.
• The demographic of those in corporate leadership positions far from reflects the Canadian population available to work, according to Employment Equity in the Public Service of Canada for Fiscal Year 2018 to 2019. In December 2020, the Government of Canada along with business and diversity organizations launched the 50 – 30 Challenge asking organizations aspire to gender parity (50%) and significant representation (30%) of other under-represented groups on Canadian boards and in senior management. Participants receive a digital toolkit with industry specific resources and advice, among other benefits, with the goal of supporting increased representation and inclusion of underrepresented groups on their boards and in senior management. These tools and resources were developed with $33M funding by the Canadian government. To date, 1,190 organizations are participating.
• Next steps towards long-term, foundational change to supplement the 2020 Speech from the Throne include the 2021 Federal Budget initiatives, in Part 3 – A Resilient and Inclusive Recovery to amend the Public Service Employment Act to affirm the importance of a diverse and inclusive workforce and avoid biases and barriers in hiring, and a $504M pledge over the next five years towards Fighting Systemic Racism and Empowering Communities.

Legal Disclosure Requirements. Canadian law reflects this carrot versus stick approach to addressing diversity on Canadian boards and in senior management. Current diversity requirements in Canadian law is limited to the implementation of disclosure obligations. Disclosure obligations don’t dictate a diversity quota to the corporations subject to them, but they do make the diversity of a corporation’s governance and leadership team transparent to stakeholders. These stakeholders comprise of actual and potential investors, an increasing number of which, along with proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis, include diversity practices and reporting compliance as key criteria in their proxy voting advice and guidelines.

Private Sector Opportunities. Many private entities have also taken this opportunity to reflect on their diversity and inclusion practices with renewed pledges and passion to break down barriers. This is a time when corporate governance diversity disclosure requirements offer a starting point to increase representation on boards and in senior management. Data compiled on gender diversity reporting obligations suggests those corporations that implemented key mechanisms achieved more success than those that have not. While it’s too early to know the long term impact of the broader diversity disclosure obligations that took effect on January 1, 2020, there’s hope similar gains will be made.

Here’s a snapshot of the two key Canadian corporate governance diversity reporting obligations and how they have impacted corporate governance in Canada to date.

Non-Venture Reporting Issuers

Amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices imposed six new disclosure obligations specifically related to women on boards and in senior management of non-venture reporting issuers. The Canadian Securities Administrators (CSA) expressly noted the amendments are intended to “increase transparency for investors and other stakeholders regarding the representation of women on boards and in senior management of non-venture issuers … to assist investors when making investment and voting decisions.”

Application. Starting on December 31, 2014, the securities regulators of every Canadian province and territory except, to date, B.C. and P.E.I., have adopted the amendments to NI 58-101, which apply to all non-venture issuers reporting in each participating Canadian province and territory.

“Diversity”. The “diversity” that non-venture reporting issuers must disclose is limited to gender diversity, and in particular, to women.    

Disclosure Details. Issuers subject to the gender diversity reporting obligations must disclose this information in the proxy circular or the annual information form filed following its financial year:

• Policy. Whether the issuer has a written policy relating to the identification and nomination of women directors. If it doesn’t have a policy, it must explain why it hasn’t created one. If it does have a policy, it must summarize:
  • The policy’s objectives and key provisions.
  • The measures the issuer has taken to ensure it has effectively implemented the policy.
  • The issuer’s annual and cumulative progress in achieving the policy’s objectives.
  • Whether, and if so how, the board or nominating committee measures the policy’s effectiveness.
• Board Candidates.Whether the issuer’s board or nominating committee considers the level of representation of women on the board when it’s identifying and nominating candidates for the board. If it doesn’t consider this, it must explain why not.
• Senior Management Candidates. Whether the issuer’s board or nominating committee considers the level of representation of women in senior management when it’s identifying and nominating candidates for executive officer appointments. If it doesn’t consider this, it must explain why not.
• Targets. Whether the issuer has adopted a target (either a number or percentage) for women directors and executive officers. If it has, it must disclose the target and the annual and cumulative progress it has made in achieving them. If it hasn’t adopted one, it must explain why it did not.

• Representation. The number and percentage of the issuer’s women directors and executive officers.

• Board Vacancies.Whether or not the issuer has adopted term limits for the directors on its board or other mechanisms of board renewal and if it hasn’t, why not (the point being to make space available on boards for women to occupy).

Comply or Explain. These obligations follow a “comply or explain why” model. The securities regulators monitor circulars for compliance with all disclosure obligations, assessing both the robustness of the disclosure and the explanations for non-compliance.

Impact. As at December 2020, the diversity disclosure obligations had been in effect for six full proxy years. On March 10, 2021, the CSA issued its Report on Sixth Staff Review of Disclosure Regarding Women on Boards and in Executive Officer Positions detailing trends based on a review sample of 610 issuers. The Report indicates there has been some progress – but there’s still a long way to go, especially in the C-Suite, and in the Mining and Oil & Gas industries that represent 42% of issuers:

• Board Seats. Women held a mere 20% of board seats and only 6% had a woman board chair. When the disclosure requirements came into effect, 49% of issuers had at least one woman on their board. This has steadily increased to 79%. However, only 20% had three or more women on their board.
• Executive Officers. While 65% of issuers had at least one woman in an executive officer position, only 5% had a woman CEO and only 15% had a woman CFO.

The Report also suggests, however, that those corporations that have implemented the mechanisms they are required to disclose have achieved a higher level of gender diversity than those that have not:

• Targets. Only 26% of issuers had adopted targets for representation of women on their board. However, women held an average of 26% of the board seats of issuers that adopted board targets for women; women held only an average of 17% of the board seats of issuers that did not. In contrast, only 4% of issuers had adopted targets for women in executive officer positions – and the lower number of women holding C-Suite positions reflects this.
• Policy. 54% of issuers had adopted a policy respecting the representation of women on their board. Women held an average of 23% of board seats of issuers that adopted a policy respecting the representation of women on their boards; women held an average of only 15% of board seats of issuers that did not.
• Board Renewal. 57% of issuers had adopted some form of board renewal mechanism, either term limits, another mechanism, or a combination, and women filled 30% of board vacancies in year six (2020) of the review, a decrease of 3% compared to 2019, but still an increase since the CSA began collecting data.

Public Corporations Under the Canada Business Corporations Act (CBCA)

Effective January 1, 2020, the mandatory director and senior management diversity reporting in Bill C-25, which the federal government introduced in 2016, finally kicked in. The CBCA amendments attempt to harmonize the corporate governance framework of federally-regulated corporations with that of their provincially-regulated counterparts and existing securities laws.

Application. The “prescribed corporations” to which the diversity disclosure apply are all distributing corporations. Notably, unlike similar existing requirements under securities laws, venture issuers aren’t exempt from the CBCA diversity reporting obligation.

“Diversity”. These diversity disclosure requirements are far more expansive than those required of non-venture reporting issuers, extending beyond gender to “designated groups”. “Designated groups” is defined to include those “designated groups” under the Employment Equity Act, which include:

• Women
• Indigenous peoples.
• Persons with disabilities.
• Members of visible minorities.

Comply or Explain. Similar to the gender diversity reporting obligations applicable to non-venture reporting issuers, the CBCA model adopts a “comply or explain” model. While under the CBCA, an omission of diversity disclosure exposes the corporation and, potentially, officers and directors personally, to a fine up to $5,000.00 or to imprisonment for up to six months (or both), Corporations Canada’s intent appears to also take a carrot versus stick approach, stating it will continue to “reach out” to “inform” and “remind” corporations of their disclosure obligations and “encourage” compliance. The threat of shareholder pressure, rather than the threat of punishment, might also motivate corporations to report on – and to increase – their diversity.

Disclosure. Corporations must provide this information at every annual meeting by including it in the notice or proxy circular:

• Policy. Whether the corporation has adopted a written policy relating to the identification and nomination of directors from designated groups, and if not, why. If a corporation has adopted a policy, the corporation must summarize:
  • The policy’s objectives and key provisions.
  • The measures the issuer has taken to ensure it has effectively implemented the policy.
  • The issuer’s annual and cumulative progress in achieving the policy’s objectives.
  • Whether, and if so how, the board or nominating committee measures the policy’s effectiveness.
• Director Candidates. Whether, and if so how, the corporation’s board considers the level of designated group representation on the board in the identification and nomination of directors.
• Senior Management Candidates. Whether, and if so how, the corporation considers the level of designated group representation in senior management when making senior management appointments. The CBCA defines senior management members by reference to the definition of “executive officers” in National Instrument 51-102 – Continuous Disclosure Obligations, which includes the CEO, CFO, President, Chair, or any other individual who performs policy-making functions for the corporation.
• Targets. Whether the corporation has adopted a target or percentage of persons of designated groups to occupy board and senior management positions. If so, the target and the corporation’s annual and cumulative progress in achieving that target; and if not, reasons why it wasn’t.
• Representation. The number and proportion of persons of designated groups in director and senior management positions of the corporation.
• Board Renewal.Whether or not the corporation has adopted term limits for the directors on its board or other mechanisms of board renewal and if it hasn’t, why not.

Guidelines. Corporations Canada (the government agency that administers the Canada Business Corporations Act) acknowledged a gap in specifying how corporations should disclose information in the proxies. To mitigate this gap, Corporations Canada published Guidelines to encourage and help corporations to disclose their diversity information in a consistent manner. The intention is that corporations disclose information separately for directors and senior management roles, and have an opportunity to disclose additional information that might be relevant to give stakeholders an accurate picture of the corporation’s commitment to diversity in leadership.

Impact. The diversity disclosure obligations of applicable CBCA corporations only took effect on January 1, 2020, and COVID-19 disrupted business operations for many corporations only two months later. Still, on April 7, 2021, Corporations Canada issued its first annual report on the diversity of boards of directors and senior management of federal distributing corporations respecting disclosure information, similar to that of the CSA respecting gender diversity disclosure. The findings were consistent with conclusions from several studies: women, Indigenous peoples, people with disabilities and members of visible minorities are significantly under-represented on boards and in senior management positions of federal distributing corporations in Canada. However, the findings also demonstrate that the past six years of gender diversity disclosure requirements for non-venture reporting issuers has contributed to the improvement in representation of women in leadership positions. There’s thus reason to be optimistic that a similar result could play out for members of other underrepresented groups with the implementation of the broader diversity disclosure requirements the CBCA now mandates. In particular, the consistent reason offered for not adopting a measure in key areas was merit-based candidate selection. This could present an opportunity for Corporations Canada to engage with corporations to better understand this hurdle and provide support to overcome it. The next few years will reveal whether CBCA corporations use the diversity disclosure obligations along with government supports as an opportunity to reflect on and improve their corporate governance diversity and inclusion practices.

• Board Seats. While 50% had at least one board seat held by women and 16% by visible minorities, less than 2% had at least one held by persons with disabilities and one by Indigenous peoples. And women, visible minorities, persons with disabilities and Indigenous peoples cumulatively held a total of only 21.6% of board seats – with 17% of those being held by women.
• Senior Management. Similarly, 47% had at least one woman on their senior management team and 22.8% at least one visible minority, but less than 2.2% had a person with a disability or an Indigenous person on their senior management team. And cumulatively, women, visible minorities, persons with disabilities and Indigenous peoples held 34.8% of positions in senior management teams of all reporting corporations – with 25% of those being held by women.
• Targets. 44% of corporations said they consider the level of representation of women, and 34% to 35% consider the level of representation of Indigenous peoples, members of visible minorities and persons with disabilities, on the board when identifying and nominating candidates for election or re-election. Yet only 14% adopted targets for the representation of women on their boards – and a negligible 1% adopted targets for the representation of Indigenous peoples, members of visible minorities and persons with disabilities. Even fewer corporations adopted targets for senior management representation. 45% of corporations said they consider the level of representation of women, and 35% to 36% consider the level of representation of Indigenous peoples, members of visible minorities and persons with disabilities among senior management when appointing members of senior management. But a mere 5.5% adopted targets for the representation of women, and an average of less than 1% adopted targets for the representation of the other designated groups.
• Policy. 32% adopted written policies relating to the identification and nomination of women for directors, and 26% adopted written policies relating to the identification and nomination of Indigenous peoples, members of visible minorities, and persons with disabilities for directors. But there was a substantial difference in the policy adoption rate between venture and non-venture CBCA corporations: non-venture issuers (which are also subject to the gender disclosure obligations) were six times more likely to adopt written policies than venture issuers.
• Board Renewal.And despite the number of corporations that said they consider underrepresented groups on the board when identifying and nominating candidates for election or re-election, and that adopted related written policies, only 16% actually adopted some formal mechanism for board renewal (age limits, tenure limits, or both).