The Canadian Securities Administrators recently released the results of their third review of compliance with the new gender diversity disclosure rules.
In 2015, new rules were implemented pursuant to National Instrument 58-101 – Disclosure of Corporate Governance Practices which require Canadian public companies to disclose, on an annual basis, certain information regarding women in executive positions and on boards (the Gender Disclosure Rules). The Canadian Securities Administrators (CSA) have closely monitored compliance with the Gender Disclosure Rules since their coming into effect. On September 28, 2015, the CSA published a summary of the findings of their review of compliance with the Gender Disclosure Rules by companies that had released their annual proxy circulars or annual information forms by July 31, 2015 (Year 1), and on September 28, 2016, the CSA published an updated set of findings, this time focusing on compliance by companies that had released their annual disclosure by July 31, 2016 (Year 2) (see a previous article summarizing the results of the Year 2 findings here).
Building on their two previous annual reviews, the CSA published a summary of the findings of their review of compliance with the Gender Disclosure Rules by companies that had year-ends between December 31, 2016 and March 31, 2017 (Year 3) on October 5, 2017. The Year 3 findings are based on a sample size of 660 issuers.
Overall, the Year 3 findings reveal positive, although somewhat modest, improvement since Year 2 and cumulatively since Year 1 with respect to women’s representation on boards and in executive officer positions.
While the Year 3 findings indicate that most issuers comply with the Gender Disclosure Rules by reporting annually on gender diversity, common deficiencies in the quality of the disclosure provided were noted by the CSA. The Year 3 findings underscore the importance of clear and meaningful disclosure that goes beyond vague or boilerplate statements.
As reiterated by the CSA, the Gender Disclosure Rules require TSX-listed (and other non-venture) companies to provide disclosure with respect to their gender diversity practices at senior leadership levels with a view to increased transparency for investors and stakeholders making investment and voting decisions. To achieve this objective, the Gender Disclosure Rules go beyond simply requiring issuers to disclose the number and percentage of women on their board of directors and in executive officer positions. They also compel them to adequately describe:
- any term limits for directors or other mechanisms of board renewal;
- their written policies relating to the identification and nomination of women directors;
- how they consider the level of representation of women when identifying and selecting directors and executive officers; and
- their gender diversity targets with respect to their boards and executive officer positions, and their annual and cumulative progress in achieving these targets.
Issuers who have not adopted these practices are required to explain why not.
Results of the CSA Year 3 Review
The CSA’s Year 3 findings reveal the following (with meaningful differences as compared to Year 1 and Year 2 noted):
BOARDS OF DIRECTORS
- Number of Women. 61% disclosed having at least one female director (up 6% over Year 2 and up 12% over Year 1). While 26% of board vacancies in Year 3 were filled by women, the overall percentage of board seats occupied by female directors remained relatively consistent at 14% (up 2% over Year 2 and up 3% over Year 1).
- Policies Regarding the Representation of Women. 35% disclosed having adopted a written policy relating to the identification and nomination of women directors, representing a significant increase over previous years (up 14% over Year 2 and up 20% over Year 1). Only 1% failed to provide disclosure with respect to policy adoption (down 1% over Year 2 and down 7% over Year 1).
- Targets Regarding the Representation of Women. 11% set targets for the representation of women on their boards (up 2% over Year 2 and up 4% over Year 1), with larger issuers, as measured by market capitalization, being more likely to adopt such goals. Of issuers with targets for the representation of women on their boards, 90% aimed to fill 25% or more of their board seats with women and 57% declared having already achieved their stated targets. Similar to Year 2 and Year 1, the reason most often cited by issuers for not adopting gender diversity targets with respect to their boards is that candidates are selected based on merit.
- Consideration of the Representation of Women. 65% of issuers disclosed that they consider the representation of women as part of their director identification and nominating process (down 1% over Year 2 and up 5% over Year 1). 37% of issuers that disclosed that they consider the representation of women on their board provided disclosure as to how it was considered.
- Term Limits. 21% adopted director term limits (up 1% over Year 2 and up 2% over Year 1), most often in the form of age limits (50%) or a combination of age and tenure limits (27%). Of issuers who did not set director term limits and who disclosed their reasons for not doing so, the vast majority stated that they did not adopt such measures because they felt that doing so may negatively impact the continuity and experience on their board.
- Number of Women. 62% disclosed having at least one female executive officer (up 3% over Year 2 and up 2% over Year 1).
- Targets Regarding the Representation of Women. 3% set formal targets for the representation of women in executive officer positions in Year 3 (up 1% over Year 2 and Year 1, respectively).
- Consideration of the Representation of Women. 58% disclosed that they consider the representation of women when making executive officer appointments (no change in relation to Year 2 and up 5% over Year 1). 34% of issuers that disclosed that they consider the representation of women in executive officer positions provided disclosure as to how it was considered.
In keeping with its previous annual reviews, the CSA’s Year 3 findings reiterate that companies that have policies or targets in place achieve better representation of women in senior leadership positions. As the CSA continues to monitor gender diversity, issuers should be mindful of providing clear and meaningful disclosure. The CSA’s Year 1 findings, which set out disclosure examples, remain a useful tool for issuers.
Wondering what you can do to support the trend towards greater gender diversity on corporate boards? See the following article: Getting Women on Corporate Boards: How Can Women Capitalize off of the Trend Toward Gender Diversity?