Women on boards and the ‘comply or explain’ rule

In today’s modern business world, the topic of women’s representation on boards of directors and in senior management within reporting issuers is certainly newsworthy. In the fall of 2016, shortly after the Canadian Securities Administrators published the results of their analysis as to the implementation of requirements for disclosure by non-venture issuers, (Notice 58-308), Bill C-25 was filed. Bill C-25 amends the Canada Business Corporations Act by requiring distributing corporations to disclose information pertaining to diversity among
directors and members of the senior management to its shareholders.

Recall that at the end of 2014, National Instrument 58-101-Disclosure of Corporate Governance Practices was amended by new provisions as to the representation of women sitting on boards and occupying executive officer positions of non-venture issuers. The goal was to introduce “comply or explain” requirements to encourage gender diversity on boards and within senior management.

In June 2016, Catalyst Canada published a report regarding diversity within boards in Canada. The report generally leads to the conclusion that the measures in place are not yielding the desired effects. Eleven recommendations to accelerate progress in this area have been proposed, which include reaching a target of 30 per cent women on boards for all issuers that currently have at least one woman director and one woman director for all issuers that currently have no women on their board within a period of three to five years.

The recommendations of the report are more demanding than the model proposed by the CSA in that they are specifying clear target percentages as well as indicating clear timelines for achieving targets. These recommendations have since been adopted by the Government of Ontario.

Following the report, the Ontario Securities Commission has indicated in Notice 11-775 its intent to focus on gender diversity and to monitor the progress of disclosure requirements related to the gender diversity regime.

In September 2016, the analysis of the concrete impacts of the measures introduced by NI 58-101 on the status of gender diversity reveal that there is still significant room for improvement. CSA stated in Notice 58-308 that, overall, 12 per cent of all the sampled board members composition was women, versus 11 per cent in 2015. In addition, 55 per cent of the issuers had at least one woman on their board. If this statistic represents an improvement of six per cent from 2015, it sheds light on the fact that 45 per cent of the boards had no woman as director.

When reading Notice 58-308, the reader cannot help but sense an underlying disappointment in the modest progress that has resulted from the amendments that were made to NI 58-101 two years ago. Commenting on the low number of women filling board vacancies, Maureen Jensen, chairwoman and CEO of the OSC, said that “without an improvement here, we will never reach 30 per cent female board representation.”

While the CSA was assessing the impacts of the amendments to NI 58-101, the diversity disclosure reporting requirements were launched at the federal level with Bill C-25.  

The proposed amended CBCA regulations currently indicate that the information respecting gender diversity required by NI 58-101 need to be disclosed at every annual shareholder meeting, which basically means that the CSA “comply or explain” model is duplicated. However, the notion of “diversity” encompasses more than gender alone as information respecting diversity other than gender is required to be disclosed. The scope of diversity is, therefore, broader than in NI 58-101.

The implementation of quotas to make the representation of women more prominent has also been discussed by many, but it has yet to be confirmed as part of the legislation or regulations. It will certainly be interesting to follow the evolution of this bill in correlation with the quantifiable data that has been compiled since the implementation of the CSA “comply or explain” model in 2014.

Caroline Moreau is legal adviser at National Bank of Canada.