On July 30, 2013, the Ontario Securities Commission (the “OSC”) published Staff Consultation Paper 58-401, Disclosure Requirements Regarding Women on Boards and in Senior Management (the “Consultation Paper”), to seek input on a proposal to require TSX-listed companies and other companies listed or quoted on certain other foreign stock exchanges to provide disclosure about women on boards and in senior management. The comment period on the Consultation Paper closed on October 4, 2013.
The Consultation Paper is in response to a request by the Ontario Government asking the OSC to review the representation of women on boards and senior management of major businesses, not-for-profit firms, and other large organizations, and specifically to undertake a public consultation process to consider a “comply or explain” regime that would require certain public companies to disclose their gender diversity policies and initiatives.
According to the Consultation Paper, recent studies have shown that women occupy approximately 10% to 13% of the board seats in Canada and growth has remained stagnant in recent years. Similarly, the current number of women in senior officer positions is approximately 18%, representing very little year over year growth.
There are two main components to Ontario’s current framework regarding corporate governance: (1) National Policy 58-201, Corporate Governance Guidelines, which contains guidelines for corporate practices of reporting issuers; and (2) National Instrument 58-101, Disclosure of Corporate Governance Practices (“NI 58-101”), which sets out requirements for reporting issuers to disclose their corporate governance practices on an annual basis. The OSC’s proposal would amend NI 58-101 to require Ontario reporting issuers to provide gender diversity disclosure as part of their annual summary of corporate governance practices.
The OSC’s proposal requires annual disclosure in the following areas:
1) Policies regarding representation and advancement of women on boards and in senior management
Under the proposal, issuers would be required to disclose whether there are such policies in place and if so, to provide a summary and description of how they intend to advance the participation of women in such areas. The issuer would also be required to disclose how the policies have been, or are being, implemented and measured, and to provide disclosure on their progress.
Issuers that have not implemented policies regarding representation and advancement of women on boards and in senior management will be required to explain why they haven’t and to identify risks or opportunity costs associated with their decision not to do so.
2. Consideration of the representation of women in identifying and nominating directors
There is already an existing requirement for issuers to describe the process for selection of new candidates for board seats. However, under the proposal, an issuer would also be required to disclose whether the level of representation of women on the board is considered in identifying/nominating candidates, and if so, how the board (or nominating committee) does this. If the issuer decides not to consider such factors, it must provide an explanation of its decision and identify any risks or opportunity costs associated therewith.
3. Consideration of the representation of women in the board evaluation process
The proposal requires that, if an issuer has a policy regarding the representation of women on the board and/or in senior management, it should discuss how following such policy or achieving goals therein are assessed in the context of the annual evaluation of the board’s and nominating committee’s effectiveness.
4. Measurement regarding the representation of women in the organization and specifically on the board and in senior management
Here, the proposal requires issuers to disclose the percentage of women in the whole organization, in senior executive positions, and on the board.
The OSC’s proposal is informed by gender diversity disclosure rules and guidelines in jurisdictions such as the United States, the United Kingdom and Australia. These disclosure rules are intended to provide stakeholders and investors with information on the issuer’s approach to advancing diversity which may have an impact on investment and shareholder votes.
In response to the Consultation Paper, the Ontario Teachers’ Pension Plan (“OTTP”) has urged the OSC to instead require all TSX-listed companies to appoint at least three women on their boards. It noted in particular that while there has been increasing awareness about the lack of women representation on boards and the opportunity for the companies to proactively address gender diversity, the results have been disappointing. As a result, OTTP proposed that the OSC adopt a more aggressive policy that goes beyond the “comply or explain” regime in which, following an appropriate phase-in period, by 2020, TSX-listed companies would risk being delisted should they fail to have at least three women on their respective boards.