Diversity Considerations and Disclosure Requirements for Canadian Public Companies
As regards board and management diversity, the legal requirements and various recommendations pertinent to public companies remain a patchwork and are subject to frequent change. This section will canvas the existing legal and exchange requirements for diversity disclosure, as well as the recently updated proxy-voting guidelines of Institutional Shareholder Services Inc. (“ISS”) and Glass, Lewis & Co. (“Glass Lewis”).
Legal Requirements of Canadian Issuers
All diversity disclosure requirements that have been imposed in Canada by corporate statutes, securities regulators and exchanges remain ‘comply or explain.’ This means that Canadian law imposes no obligation on corporations to specify and meet specific adoption requirements, quotas or increase the diversity of their board of directors and senior management (“Management”). However, if they have not done so, they are required to explain why that is the case.
Canadian diversity disclosure requirements vary along two axes: 1) a corporation’s governing statute, and 2) a corporation’s status as a venture issuer or non-venture issuer under instruments of the Canadian Securities Administrators.
1) Canadian Business Corporations Act versus Provincial Statutes
On January 1, 2020, amendments to the Canadian Business Corporations Act (the “CBCA”) took effect requiring all ‘distributing corporations,’ including venture issuers, governed under the CBCA to provide shareholders with annual information and statistics on the corporation’s diversity polices and practices with respect to their Management. Annual disclosure is to be provided within the annual shareholder meeting notice or proxy circular and filed with Corporations Canada.
All CBCA distributing corporations are required to annually disclose their Management term limits, diversity policies and diversity targets (along with any related statistics) for representation of “designated groups”. The term “designated groups” is defined within the federal Employment Equity Act, going beyond gender diversity to incorporate Aboriginal peoples, persons with disabilities and members of visible minorities into the definition.
The federal government hopes that these new requirements will propel Management-level diversity and it plans to review these regulations after five years to establish further steps to reach diversity objectives as may be determined.
Provincial corporate statutes do not currently impose any diversity disclosure requirements. For public companies governed by these, their diversity disclosure obligations will be wholly determined by their status as venture or non-venture issuers.
2) Requirements of Canadian Securities Regulators: venture versus non-venture issuers
National Instrument 58-101 – Disclosure of Corporate Governance Practices (“NI 58-101”) requires only non-venture issuers to provide annual disclosure in their proxy circular in regard to the representation of women among their Management. This disclosure need not be filed with any government agency.
Venture issuers are exempt from the NI 58-101 diversity disclosure requirement. As such, these issuers will be subject to no diversity disclosure requirements at all if they are not governed by the CBCA.
Proxy-voting Guidelines of ISS and Glass Lewis
ISS and Glass Lewis have recently published their updated Canadian proxy-voting guidelines. The updated Glass Lewis guidelines will apply to shareholder meetings held on or after January 1, 2023, and the updated ISS guidelines will apply to shareholders meetings held on or after February 1, 2023.
1) ISS Guidelines
For companies which make up the S&P/TSX Composite Index, the new ISS guidelines provide generally for a ‘withhold’ vote against the Chair of Nominating Committee (or Chair of the board of directors if no nominating committee or no chair thereof has been identified) where women comprise less than 30% of the board of directors. For TSX-listed companies that are not also S&P/TSX Composite Index constituents, the ISS guidelines provide for a ‘withhold’ vote of the same kind where there are no women on the board of directors.
Furthermore, for meetings which take place on or after February 1, 2024, the ISS guidelines will provide generally for a ‘withhold’ vote of the same kind as above where the board of directors has no apparent racially or ethnically diverse members.
The ISS guidelines provide no general rule for ‘withhold’ votes against directors of venture-listed companies on diversity grounds.
2) Glass Lewis Guidelines
The new Glass Lewis guidelines generally provide for a withhold vote against the Chair of the Nominating Committee of any TSX-listed company the board of which is not at least 30% gender diverse, as well as against the members of the Nominating Committee where the board has no gender diverse directors.
For venture-listed issuers, the Glass Lewis guidelines continue to provide for a minimum of one gender diverse director.